Kenya launches ‘encryption’ bill amid call for better oversight

Kenya It has launched its first comprehensive draft law on digital assets and is seeking public comments amid a call by the International Monetary Fund (IMF) for the country to update its outdated oversight framework for “cryptocurrencies.”

The country’s National Treasury is behind the new draft law, which aims to regulate the use of virtual assets (VAs) and virtual asset service providers (VASPs) that provide related services. Treasury Minister John Mbadi told the media that the bill was necessary due to the rapid adoption of digital assets domestically.

“Kenya’s financial sector is a beacon of innovation and growth in Africa. The Government of Kenya is committed to creating the necessary legal and regulatory framework in order to capitalize on the opportunities offered by VAs and VASPs while managing the resulting risks. male.

Kenya is one of the largest digital asset markets in Africa and ranks highly globally Peer-to-peer (P2P) trading. And comprehensive adoption over the years. However, the country, like many others in Africa, has not yet formally regulated the sector. Instead, it focused on taxes: in the last fiscal year, the government collected taxes 78 million dollars From the sector.

IMF calls for regulatory clarity

The proposed bill came just two days after the International Monetary Fund called on the East African country to modernize its digital asset regulation. In technical assistance a report At the request of the Kenya Capital Markets Authority, IMF staff advised the country to implement a clear legislative framework for the sector or risk falling behind its peers in Africa.

“The development of Kenya’s regulatory and supervisory framework for crypto assets must be aligned with international frameworks and standards,” the report stated. “When developing the regulatory framework, special emphasis should be placed on providing regulatory clarity that allows the domestic crypto-asset sector to develop in a transparent manner and enable effective supervision by the authorities.”

The International Monetary Fund’s recommendations included conducting a comprehensive analysis of the current market Financial literacy “crypto”.Coordination between relevant authorities to supervise the sector, strengthen technical and human resources within the regulatory authorities, and implement the appropriate legal framework.

“In light of the lack of specific rules regarding crypto-assets in the parent laws – which reflects the lack of a comprehensive policy position on crypto-assets – the Capital Markets Authority and the Central Bank of Kuwait [Central Bank of Kenya] The IMF stated that rule-making in the field of crypto-assets has so far remained limited and no formal legally binding instruments covering crypto-assets specifically or explicitly have been issued by either institution.

The IMF report also criticized the central bank’s approach, issuing a circular that amounted to a “de facto ban on direct investment in digital assets or facilitation of activities in digital asset markets.” The 2015 circular noted that digital assets do not qualify as legal tender under Kenyan law. The IMF says this prevents formal, regulated financial channels from facilitating Digital asset transactions Thus, regulators are deprived of access to the ins and outs of the industry.

“This is problematic as it further obscures the already opaque situation regarding the crypto asset market in Kenya due to the fact that the regulated part of the financial sector cannot officially engage in (and thus be used to report on) the cryptocurrency markets.”

The Washington-based organization says Kenya could choose to draft a new comprehensive legal framework, make targeted legal amendments followed by legislative reforms, issue regulations without any legislative changes, or use exemptions for some service providers.

Following in the footsteps of M-Pesa

It is not clear whether the IMF has communicated the proposed regulatory framework. It is also possible that he was influenced by the Blockchain Association of Kenya (BAK), which was commissioned to do so Help Parliament Drafting of new digital asset laws in late 2023; BAK did not issue any statement regarding the new proposals.

However, according to the Treasury, the framework is inspired by the desire to lead Africa in fintech using digital assets, as the East African country has done with mobile money. The world-famous M-Pesa service, which has been around for nearly two decades, has revolutionized mobile money across Africa and beyond. In Kenya, the service exists 34 million Customers, nearly 100% of the adult population.

“From the pioneering mobile money revolution sparked by the launch of mobile-based financial services in 2007 to the robust financial ecosystem, the country has been pushing the boundaries of financial inclusion through technological advancement,” Mbadi said.

The Treasury Minister acknowledged that digital assets have a role to play in Kenya Digital payments sector. According to the International Monetary Fund, local businesses are increasingly using digital assets for cross-border payments as mainstream alternatives remain expensive and slow.

However, Mbadi noted that Kenya must mitigate the risks posed by digital assets. This includes money laundering, tax evasion, fraud, fraud, terrorist financing, etc Other forms of cybercrime.

Watch: Promoting financial inclusion in Africa with BSV blockchain

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