Investors in the cryptocurrency market want Parliament to reduce the Sh10 million fine prescribed in the Virtual Asset Service Providers (VASPs) Bill, 2025, arguing it is excessively punitive.
The Bill provides for fines up to Sh10 million per infraction and prison term of up to five years for violators.
Appearing before the National Assembly's Finance and Planning committee that is receiving public views on the Bill, the Virtual Asset Chamber (VAC ) asked MPs to align the penalties with those for similar infractions in other financial sectors.
Allan Kakai, the head of VAC said: "For instance, operating a payment service provider without a licence attracts a fine of Sh500,000 or a three-year prison term.
Mr Kakai said this would discourage innovation and the slow down growth of the virtual assets sector.
The Bill establishes virtual assets service providers and issuers of initial virtual asset offerings in Kenya.
The Bill defines virtual asset to mean a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes and does not include digital representation of fiat currencies, e-money, securities and other financial assets.
The virtual assets players however backed the Bill which requires every virtual assets service provider to open and operate a bank account in Kenya.
The lobby said crypto companies have for the past 10 years been unable to access banking services due to an existing Central Bank of Kenya cautionary notice.
"This legislation as a win that would open up such integration. We have engaged regulators and the National Treasury on consumer protections, licensing and compliance, anti-money laundering and terrorism financing," Mr Kakai said.
"As at the end of quarter 2, the virtual assets market was estimated to be valued at $3.6 trillion. Kenya intends to be a competitive hub for adoption of virtual assets. There is opportunity for consumer protection, and foreign direct investments."
He asked the committee to amend a clause that restricts individuals from holding directorship in more than two virtual assets service provider boards, noting that the restriction may unduly limit access to experienced professionals and stifle growth, particularly for startups.
"Some investors may have an interest in more than two VASPs and would need directorship as a consideration for their investments. Some innovators may also have various VASP services they want to roll out to market," he said.
Mr Kakai also asked MPs to strike out clause 31(1),(2), (3) which states that a virtual asset service provider who intends to appoint or designate a person as a chief executive officer, shall apply to the relevant regulatory authority for its approval.
"This provision imposes undue administrative burdens by requiring regulatory approval for internal leadership decisions. Companies should retain the autonomy to appoint their chief executive officers, subject to existing fit-and-proper criteria," he said.
"Whereas it may be important to have a senior manager in Kenya, some chief executive officers have already been appointed and oversee operations across multiple countries."
Committee session Chairman David Mboni (Kitui Rural MP) said the lawmakers will strike out the proposal noting that there is no need to seek permission when a firm seeks to employ a CEO.
The VAC also rejected a clause that required vetting of significant shareholders, beneficial owners, directors, and senior officers.
"This is impractical for global structures since many VASPs are part of international corporate groups with complex and changing shareholder compositions, making local vetting of all significant shareholders administratively burdensome and impractical," he said.
The Bill proposes to vest the regulatory mandate and supervision of VASPs on the Central Bank of Kenya (CBK), Capital Markets Authority, Communications Authority, and any other body as the Cabinet Secretary for the National Treasury may determine and publish in the Kenya gazette.
Once passed, Kenya will be the third country after Nigeria and South Africa to have a law that governs crypto currencies in Africa.
A report by the United Nations released in 2022 showed that Kenya has the largest share of its population with cryptocurrencies in Africa, pointing to the country’s exposure to the ongoing meltdown in the crypto market.
The United Nations Conference on Trade and Development (UNCTAD) report said that 8.5 percent of the population or 4.25 million people own cryptocurrencies in the country.
This places Kenya ahead of developed economies such as the United States, which is ranked sixth with 8.3 percent of its population owning digital currencies.
The crypto market, known for its wild price swings, in 2023 shed more than half of its value since November last year as investors pulled out money from riskier assets amid worries over soaring inflation and rising interest rates.
This hit the million Kenyans, mainly young and small traders, who in recent years have flocked to cryptocurrencies in the hope of quick returns, despite warnings from regulators such as the CBK.
Cryptocurrencies are already being traded by millions of Kenyans yet there is no law to govern it and the new Bill is aimed at regulating and taxing the fast-growing digital currency trade.
The proposed amendment provides for specific provisions to govern the digital currency transactions in Kenya, its creation through crypto mining, provide regulation around trading of digital currencies, provide for its taxation, ownership and provide for promotion of innovation in the sector.
The sector is not regulated in the country and remains largely unregulated even in the developed world. This makes it difficult to establish the value of digital assets held by the mostly tech-savvy Kenyans, but the amount could run into billions of shillings.
The Bill requires persons who own or deal in digital currency to provide the Capital Markets Authority (CMA) with specific information for tax purposes.
Those owning or dealing in digital currency will be required to furnish the regulator with information regarding the amount of the virtual currency in Kenya shillings.
They will also be required to inform the CMA of the type of virtual currency transacted in, the date on which the virtual currency was acquired and the date on which the virtual currency was sold.
Former CBK governor Patrick Njoroge in an advisory to Kenyans said cryptocurrencies posed risks to financial stability but they could be used to solve problems such as bringing the poor into the financial system or cutting transaction costs.
