Kenyan financial regulators are considering developing crypto rules

Kenyan financial regulators are considering developing rules to regulate bitcoin and other crypto assets in the East African nation in the face of accelerating adoption. This is one of the outcomes of the recent 13th Joint Financial Sector Regulators Forum (FSR) held between Dec. 13 and Dec. 16, 2022, in the coastal city of Kisumu, Kenya.

The details

• FSR, established in 2009, comprises five financial regulators, including the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA) and Sacco Societies Regulatory Authority (SASRA).
• The FSR’s primary aim is to foster collaboration between members on subjects of collective interest, including regulation, enforcement and financial stability.
• During the meeting, the financial regulators agreed to consider forming a technical working group of concerned regulators to develop guidelines for regulating digital assets.

Key quote

A statement issued by the financial regulators reads:

“[FSR resolved] to consider the recommendation of the National Treasury and Economic Planning for the formation of a technical working group of concerned regulators to make recommendations to the Cabinet Secretary on the establishment of a comprehensive oversight framework on crypto assets activities and players in Kenya.”

• FSR added that the process would involve extensive consultations and discussions with financial sector participants and relevant crypto industry stakeholders.

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Crypto’s potentials are impossible to ignore

• The central bank and other regulators on the forum acknowledged that Kenya’s financial sector is undergoing a “period of significant transformation, particularly brought about by accelerated digitization.”

“While these have immense potential benefits, they also pose risks to the stability of the financial sector, including cyber fraud, data protection issues, consumer protection, and product pricing,” the regulators wrote.

• Kenya is one of the world’s leading countries for cryptocurrency adoption, with the 2022 Global Crypto Adoption Index compiled by blockchain analytics firm Chainalysis ranking the country 19th.
• According to Chainalysis, African countries, including Kenya, have “some of the most well-developed cryptocurrency markets of any region, with deep penetration and integration of cryptocurrency into everyday financial activity for many users.”
• CBK and its fellow regulators are moving to provide oversight on the fast-growing digital finance space.

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Before now

• The CBK has long argued that crypto assets threaten financial stability, with the bank warning Kenyan citizens to desist. The bank also restricts banks under its purview from engaging with crypto and related entities.
• In September, CBK Governor Patrick Njoroge reiterated this stance, saying that cryptocurrencies do not solve any problems in Kenya’s economy.
• However, signs that the Kenyan government might be softening its stance on digital assets emerged last month when reports emerged that lawmakers in the East African country are discussing a bill to tax crypto.

Zoom out  

• Kenya is joining a growing list of African countries looking to regulate digital assets.
• South Africa is perhaps the most advanced in the process, with the South African Reserve Bank encouraging banks to offer services to crypto companies in a move to uphold the country’s financial integrity. The bank is reportedly working on a comprehensive crypto regulation.
• The country’s financial watchdog has also classified crypto assets as financial products.
• In addition, South Africa recently added crypto companies to the list of businesses required to comply with anti-money laundering (AML) and combatting the financing of terrorism (CFT) regulations.
• Nigeria, another African country with high crypto adoption rates, is also reportedly working on crypto regulation.