KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Sara Ndei, Cliffe Dekker Hofmeyr incorporating Kieti Law LLP
rency lending, its broad definition of “virtual asset services” potentially covers: • Custodial Wallet Services: Platforms holding cryptocurrency as collateral may fall within this category and would require licensing and regulation by the CBK or the CMA. • Transfer Services of Virtual Assets: Platforms facilitating cryptocurrency transfers between lenders and borrowers would likely be regu - lated under this category, subject to licensing by CBK or CMA. • Payment Gateway Services: Lending plat - forms managing loan disbursements or repayments involving cryptocurrencies may be regulated by CBK, with obligations such as customer due diligence, transaction moni - toring, risk management, and compliance with AML requirements. Given these broad definitions, crypto lending platforms operating in Kenya may soon require registration and regulatory oversight if the VASPs Bill is enacted. Additional regulatory guidance would likely be needed to clarify the specific applicability of existing financial services and lending regulations to cryptocurrency lending activities. 10.8 Cryptocurrency Derivatives Currently, Kenya does not have specific laws or regulations explicitly governing cryptocurrency derivatives. Traditional financial derivatives are regulated by the CMA, with the CBK overseeing related aspects affecting financial stability and payments. However, under the VASPs Bill, certain cryp - tocurrency derivatives activities may become regulated. The Bill broadly defines “virtual asset services,” potentially covering:
• Platforms for Trading and Exchange: Crypto - currency derivative trading platforms facilitat - ing transactions, including clearing and settle - ment, would likely be regulated. • Custodial Wallet Services: Entities holding cryptocurrency assets on behalf of clients involved in derivative transactions (eg, collat - eral management) would require licensing. 10.9 Decentralised Finance (DeFi) There is currently no regulation on DeFi in Kenya. 10.10Regulation of Funds There are currently no regulations on how funds can invest in virtual assets. For fund managers licensed under the Capital Markets Act and the Retirement Benefits Act to be able to invest in virtual assets, the investment guidelines set out in the respective regulatory frameworks would need to be amended to allow for investment in blockchain assets. 10.11Virtual Currencies Virtual currencies are not currently expressly defined in Kenyan law. The Finance Act provides for the imposition of digital asset tax on income derived from the transfer or exchange of “digital asset” . The term “digital asset” is defined in the Finance Act to include “anything of value that is not tan- gible and cryptocurrencies, token code, num- ber held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without considera- tion that can be transferred, stored or exchanged electronically” . This definition would capture vir - tual currencies and, as such, any gain from the exchange of virtual currencies would be subject to tax in Kenya.
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