Kenyan crpyto stakeholders resist $77,000 fine in proposed VASP bill

Players in Kenya’s cryptocurrency market are urging the nation’s parliament to reconsider the heavy $77,303 (Sh10 million) fines proposed in the Virtual Asset Service Providers (VASP) Bill, 2025. For them, the penalty is excessively punitive and could stifle innovation.

The bill, aimed at regulating the country’s crypto market, has sparked intense debate among stakeholders who see both opportunities and challenges in formalising oversight of digital currencies.

The VASP Bill, 2025, introduced by the 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 that all virtual asset service providers open and operate bank accounts in Kenya, a move intended to enhance transparency and curb illicit activities such as money laundering and terrorism financing.

The bill also introduced provisions for taxing crypto transactions, promoting innovation, and regulating activities like crypto mining and token distribution, referred to as “adroip” in the decentralised digital ecosystem.

If passed, Kenya would join Nigeria and South Africa as the third African nation with comprehensive cryptocurrency legislation, a significant step in addressing the unregulated trade that has attracted millions of Kenyans.

However, the Virtual Asset Chamber (VAC) and crypto exchange Yellow Card, in submissions to the National Assembly’s Finance and National Planning Committee, have criticised the bill’s punitive measures. They argue that fines of up to Sh10 million per infraction, coupled with potential prison sentences of up to five years, are disproportionate compared to penalties imposed on other financial institutions.

“The penalties are excessively high and could deter investment and innovation in the sector,” a VAC representative told the committee, emphasising that such measures could drive crypto businesses away from Kenya or discourage new entrants.

Kenya’s crypto 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 factors such as hyperinflation risks in local currencies, high internet penetration, and a youthful population eager to explore digital financial opportunities.

Despite this, the absence of regulation has left investors vulnerable to fraud, with notable cases like 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 stance that has complicated the industry’s ability to integrate with traditional banking systems.

For instance, a 2019 CBK circular barred banks from operating accounts for crypto firms, creating challenges for tax remittance, as highlighted by the Blockchain Association of Kenya. The association 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 restrictions.

Key concerns on the VASP bill

Alan Kakai, the association’s director for legal and policy affairs, also criticised a clause in the VASP Bill requiring regulatory approval for appointing chief executive officers, arguing that it imposes undue administrative burdens.

“Companies should retain autonomy to appoint their CEOs, subject to existing fit-and-proper criteria,” Kakai told the committee, noting that many crypto firms operate across multiple jurisdictions with pre-appointed leadership.

The committee, chaired by David Mboni (Kitui Rural), agreed to strike out this provision, signalling openness to some of the industry’s concerns.

The push for regulation comes amid growing concerns about cryptocurrency-related fraud and money laundering in Africa.

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, cases like the 2023 seizure of $768,959 from a university student linked to a Belgian cryptocurrency dealer underscore the risks of unregulated markets.

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.

The bill’s taxation provisions aim to capture revenue from the estimated Sh3 trillion transacted in Kenya’s crypto market between July 2021 and June 2022, a move seen as critical for boosting government revenue.

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 over the VASP Bill 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.