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Addressing gaps in Kenya’s virtual asset service provider Bill: A call for specificity
A high-profile fraud case has spotlighted gaps in Kenya’s proposed crypto regulations, raising fears of illicit flows and a return to the FATF greylist.
In January 2025, former Chairman of the Capital Markets Authority (CMA), Nick Nesbitt was sued charged for in a Sh102million fraud case by Vimal Shah, CEO of Bidco Africa.
Mr Nesbitt was accused of breach of an agreement to defrauding Shah the amounts by promising to convert Kenyan Shillings to US Dollars during the 2023 currency crisis but failing to deliver in full, only remitting $300,000 of the expected $745,000.
In transcripts recorded in the arbitration documents, Vimal Shah confirms when asked about the involvement of a third party in the transaction, that “It was an exchange of money, and they had a method of digitising it.
They never told us where they were getting it from and how they do it. It was their trade secret” This incident highlights vulnerabilities consumers, regardless of their financial sophistication, can be exposed to in a space where regulation is unclear. This was a classic case of an on-ramp / off-ramp transaction.
Simply put, on-ramping is turning your shillings into crypto; off-ramping is turning your crypto back into shillings. The case ended up in arbitration with Vimal Shah winning an award of $445,746 in February 2025.
On and off ramp providers serve as critical gateways in the virtual asset ecosystem. On-ramp providers enable users to convert fiat currency, such as the Kenyan Shilling, into virtual assets like Bitcoin or stablecoins.
Off-ramp providers facilitate the reverse, allowing users to convert virtual assets back into fiat currency. These services are vital for the liquidity and accessibility of cryptocurrencies, enabling both retail and institutional users to participate in the digital economy.
As Kenya seeks to regulate this advancing sector through the Virtual Asset Service Providers (VASP) Bill, 2025, concerns have arisen about its ability to comprehensively address the complexities of the virtual asset ecosystem.
Specifically, the bill may fall short in regulating on and off ramp providers, key players driving significant transaction volumes, and in providing clear guidelines for stablecoin usage, particularly for institutional transactions.
This article explores these gaps, compares Kenya’s approach to South Africa’s, and advocates for greater specificity to ensure a robust regulatory framework.
The VASP Bill, 2025, introduced on March 17, 2025, and tabled before Parliament on April 4,2025, aims to regulate virtual asset service providers (VASPs) by requiring them to obtain licenses from regulatory bodies such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA).
The bill defines VASPs as companies conducting activities like virtual asset exchanges, wallet provision, and payment processing, with Virtual Asset Payment Processors specifically described as entities that “arrange transactions involving virtual assets and fiat currency, or between virtual assets”.
At first glance, this definition appears to encompass on and off ramp providers, as they facilitate conversions between fiat and virtual assets. However, a closer examination reveals potential gaps.
The bill’s language emphasises digital platforms, such as those providing “digital online platforms” for exchanges or “custodial wallets” for storage.
This focus may not adequately cover providers operating through manual or peer-to-peer methods, such as over-the-counter (OTC) transactions or informal arrangements where individuals exchange cash for crypto in person.
Such manual or OTC providers are significant in Kenya, where OTC platforms account for 6 percent of all cryptocurrency transaction volume in Africa, more than double the share of any other region.
These providers often do not process payments programmatically, meaning they may not rely on automated digital systems, which could place them outside the bill’s regulatory scope.
This creates a grey area where unregulated providers could operate, potentially facilitating illicit financial flows, such as money laundering or fraud, which the bill aims to prevent.
Moreover, the bill explicitly prohibits natural persons from conducting VASP activities, requiring all providers to be registered companies under the Companies Act.
While this aims to ensure corporate accountability, enforcing this prohibition on individuals offering informal on and off ramp services could be challenging.
Compliant companies face stringent licensing requirements, including maintaining a physical office, minimum capital adequacy, and robust cybersecurity measures, which may be burdensome for smaller providers.
Meanwhile, non-compliant individuals or entities could continue operating without oversight, gaining a competitive advantage and undermining the bill’s objectives.
South Africa offers a contrasting model for regulating virtual assets. Its Crypto Asset Service Provider (Casp) framework, aligned with The Financial Action Task Force (FATF) guidelines, explicitly includes entities that exchange crypto assets for fiat currency or other crypto assets, covering on and off ramp providers.
This clear definition ensures that all such providers, whether digital or manual, are licensed and subject to anti-money laundering (AML) and counter-terrorism financing (CFT) measures, including the FATF Travel Rule, which requires VASPs to collect and share transaction data.
South Africa’s proactive approach has fostered a supportive environment for crypto adoption, with discussions on integrating stablecoins into the financial landscape.
By contrast, Kenya’s VASP Bill, while comprehensive, may inadvertently exclude certain on and off ramp providers due to its focus on digital platforms and corporate entities.
Adopting a more explicit regulatory approach, similar to South Africa’s, could help Kenya close these gaps and ensure comprehensive oversight of all providers, reducing the risk of unregulated activities.
To create a robust and inclusive virtual asset ecosystem, the VASP Bill must address its regulatory gaps with greater specificity. First, it should clearly define and regulate all on and off ramp providers, including those operating through manual methods.
This could involve expanding the definition of Virtual Asset Payment Processors to explicitly include OTC while defining explicit thresholds for P2P providers so as not to stifle the industry.
P2P providers should not face onerous licensing requirements and should be allowed to trade freely but failing to provide a framework for larger institutional players such as OTC providers creates needless regulatory ambiguity.
The current framework risks punishing compliant providers with stringent requirements such as maintaining physical offices, minimum capital adequacy, and annual audits. This while allowing non-compliant providers to operate in a grey area.
This could create an uneven playing field, where smaller or informal providers evade regulation, potentially increasing illicit activities and undermining consumer protection.
A more specific and enforceable regulatory approach would level the playing field and align with global best practices, as seen in South Africa.
As the bill progresses through Parliament, stakeholders must advocate for amendments to close these gaps. Learning from South Africa’s explicit approach and incorporating specific provisions for all types of on and off ramp providers and stablecoins will position Kenya as a leader in Africa’s digital finance landscape, fostering a secure and dynamic ecosystem for all participants.
More work needs to be done to address the grey areas of the bill as these gaps may result in unregulated illicit flows landing Kenya right back on the FATF greylist.
The writer is Chairman, Virtual Asset Chamber of Commerce (VACC) and Founder, ViFi Labs.
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