The recent enactment of Kenya’s Virtual Assets Service Providers (VASPs) Act marks a significant milestone in Kenya’s financial services regulatory framework.
For the first time, virtual assets and VASPs have been defined in law and brought within a structured supervisory regime. In doing so, Kenya joins a growing number of jurisdictions seeking to harness digital innovation while safeguarding financial stability.
The Act adopts a functional, twin-peak regulatory model, in which the Central Bank of Kenya (CBK) is mandated to supervise VASPs engaged in payment and settlement activities, while the Capital Markets Authority (CMA) oversees VASPs involved in the trading of tokenised securities and investment products. In principle, this approach reflects global best practice: regulation aligned with activity rather than technology.
However, the architecture also introduces a critical implementation challenge. Many virtual asset business models do not operate neatly within regulatory silos.
A single platform may facilitate payments, custody, token issuance and secondary trading. Without clear coordination mechanisms between CBK and CMA, dual licensing requirements and overlapping supervisory expectations may create uncertainty, increase compliance costs, and slow innovation.
The success of the framework will depend less on the statutory allocation of mandates and more on how coherently those mandates are carried out.
Beyond the twin peaks, the VASPs ecosystem inevitably draws in additional regulatory actors. The Office of the Data Protection Commissioner (ODPC) will play a central role given the volume and sensitivity of personal and transactional data processed by digital asset platforms.
Meanwhile, in the context of Kenya’s recent grey listing by the Financial Action Task Force (FATF), robust anti-money laundering and counterterrorism (AML/CFT) oversight will remain paramount. The Financial Reporting Centre (FRC) will be closely monitoring the adequacy of risk management and reporting frameworks within the sector.
Blockchain Intelligence tools will play an increasingly important role in advancing transaction monitoring and on-chain analytics to enhance supervisory oversight, strengthen AML/CFT compliance, providing visibility into risk patterns without imposing stringent restrictions on innovation.
Integrating such tools into supervisory frameworks would allow Kenya to meet international integrity standards while supporting responsible growth of the sector.
The result is not over-regulation; it is multi-layered regulation. However, without deliberate alignment, fragmentation becomes a real risk.
As subsidiary regulations are developed, clarity on licensing and compliance expectations will be critical to providing market certainty. Legal recognition without operational clarity can inadvertently create regulatory uncertainty, precisely at a time when clarity is most needed.
This is not a theoretical concern; Kenya is one of Africa’s most active digital asset markets. A significant number of Kenyans, particularly youth, freelancers, cross-border traders and diaspora-linked households, already interact with crypto-based platforms for payments, remittances and investment.
The ecosystem represents a meaningful opportunity to deepen financial inclusion, lower transaction costs and integrate informal economic activity into more transparent channels.
Opportunity must however be matched with safeguards; Virtual assets introduce real risks, volatility, consumer harm, cyber threats, and potential misuse for illicit financial flows.
Financial institutions interacting with VASPs will need clear guidance on risk classification, capital treatment, custody exposure and correspondent relationships. This will also give investors’ confidence in market integrity.
The core policy question, therefore, is not whether to regulate, that decision has been made. The question is how to regulate in a manner that preserves innovation while strengthening financial integrity. Regulatory coordination is the decisive factor.
Kenya would benefit from a formal inter-regulatory coordination mechanism specific to virtual assets whether through joint guidelines, sharing supervisory protocols, or a standing technical working group involving CBK, CMA, ODPC and FRC.
Clear guidance for hybrid VASPs, harmonised reporting templates, and consistent supervisory messaging would significantly reduce friction and regulatory arbitrage risk.
Structured stakeholder engagement is equally important; Banks, Fintechs, technology developers and consumer representatives must be meaningfully involved in development of subsidiary regulations.
Practical insights from market participants can help regulators anticipate unintended consequences, calibrate compliance thresholds proportionately, and ensure that innovation is not driven offshore by avoidable regulatory uncertainty.
The VASPs Act provides Kenya with an opportunity to position itself as a credible forward-looking digital asset jurisdiction, achieving this will require more than statutory mandates.
It will require coordination, clarity and constructive engagement across the regulatory ecosystem. If properly operationalised, Kenya can build a framework that advances financial inclusion, supports economic growth and upholds financial integrity. The balance between innovation and stability is not automatic, it must be deliberately engineered.
The legal architecture is in place, whether it delivers innovation, inclusion and integrity will depend entirely on disciplined, coordinated implementation.
The writer is a Governance and Compliance expert.
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