Kenya Crypto Stakeholders Challenge $77K Fines in VASP Bill

Kenyan cryptocurrency market players are urging parliament to reconsider the $77,303 (Sh10 million) fines proposed in the Virtual Asset Service Providers (VASP) Bill, 2025, arguing the penalties are excessively punitive and could stifle innovation. The bill, introduced by Leader of Majority Kimani Ichung’wah, seeks to establish a regulatory framework for virtual asset service providers and issuers of initial virtual asset offerings in Kenya. According to industry submissions to the National Assembly’s Finance and National Planning Committee, the proposed fines coupled with potential prison sentences of up to five years are disproportionate compared to penalties on other financial institutions.

Bill’s Regulatory Framework

The VASP Bill mandates that all virtual asset service providers open and operate bank accounts in Kenya to enhance transparency and curb illicit activities such as money laundering and terrorism financing. The legislation introduces provisions for taxing crypto transactions, promoting innovation, and regulating activities like crypto mining and token distribution. If passed, Kenya would join Nigeria and South Africa as the third African nation with comprehensive cryptocurrency legislation.

Stakeholder Opposition

The Virtual Asset Chamber (VAC) and crypto exchange Yellow Card have submitted formal criticisms to the National Assembly committee. A VAC representative told the committee: “The penalties are excessively high and could deter investment and innovation in the sector,” emphasising that such measures could drive crypto businesses away from Kenya or discourage new entrants. Alan Kakai, director for legal and policy affairs at the Blockchain Association of Kenya, also criticised a clause requiring regulatory approval for appointing chief executive officers, arguing it imposes undue administrative burdens. “Companies should retain autonomy to appoint their CEOs, subject to existing fit-and-proper criteria,” Kakai told the committee. The Finance and National Planning Committee, chaired by David Mboni (Kitui Rural), agreed to strike out the CEO approval provision, signalling openness to some industry concerns.

Kenya’s Crypto Market Scale

Kenya’s cryptocurrency market is significant, with a 2022 United Nations Conference on Trade and Development (UNCTAD) report indicating that 8.5% of the population (4.25 million people) own digital currencies, placing Kenya ahead of even developed economies like the United States. The sector’s growth has been fuelled by hyperinflation risks in local currencies, high internet penetration, and a youthful population eager to explore digital financial opportunities. The estimated Sh3 trillion was transacted in Kenya’s crypto market between July 2021 and June 2022, a figure the bill’s taxation provisions aim to capture for government revenue.

Fraud and Regulatory History

Despite the market’s growth, the absence of regulation has left investors vulnerable to fraud. Notable cases include the Bitstream Circle scam, which defrauded Kenyans of Sh1.18 billion in just 97 days, and the Velox 10 Global pyramid scheme, which cost investors millions. The Central Bank of Kenya (CBK) has long cautioned against cryptocurrencies, citing their lack of legal tender status and inherent risks. In 2015, the CBK warned that digital currencies like Bitcoin are unregulated and not guaranteed by any government. A 2019 CBK circular barred banks from operating accounts for crypto firms, creating challenges for tax remittance. The Blockchain Association of Kenya noted that despite collecting a 3% digital asset tax (DAT) since September 2023, the industry has been unable to remit billions of shillings to the Kenya Revenue Authority (KRA) due to these banking restrictions.

A 2021 report by the Institute for Security Studies highlighted the continent’s vulnerability to crypto scams, citing South Africa’s Mirror Trading International Ponzi scheme, which defrauded investors of $588 million, and Africrypt, where founders absconded with $3.6 billion. In Kenya, a 2023 seizure of $768,959 from a university student linked to a Belgian cryptocurrency dealer underscores the risks of unregulated markets.

Regulation vs. Innovation Balance

Proponents of the VASP Bill argue that regulation is essential to protect consumers and legitimise the industry. “Cryptocurrencies are already being traded by millions of Kenyans, yet there is no law to govern them,” said Ichung’wah. However, crypto firms warn that overly stringent regulations like the VASP Bill could push the industry underground or to jurisdictions with lighter oversight. The debate highlights the delicate balance between regulation and innovation—while the government seeks to protect consumers and curb financial crimes, the crypto industry is advocating for a framework that encourages growth without imposing crippling penalties.

FAQ

What is the VASP Bill 2025? The Virtual Asset Service Providers (VASP) Bill, 2025, introduced by Leader of Majority Kimani Ichung’wah, seeks to establish a regulatory framework for virtual asset service providers and issuers of initial virtual asset offerings in Kenya. It mandates bank accounts in Kenya, introduces crypto taxation, and regulates activities like mining and token distribution.

What are the proposed penalties? According to the bill, fines reach up to Sh10 million ($77,303) per infraction, coupled with potential prison sentences of up to five years. Industry stakeholders argue these penalties are disproportionately high compared to those imposed on other financial institutions.

Why is Kenya pursuing cryptocurrency regulation? Kenya is pursuing regulation to protect consumers from fraud, capture tax revenue from an estimated Sh3 trillion transacted between July 2021 and June 2022, and curb illicit activities such as money laundering and terrorism financing. If passed, Kenya would become the third African nation with comprehensive cryptocurrency legislation.