Kenya mulls regulating crypto space amidst concerns on grey listing

Kenya is taking steps to regulate cryptocurrency trading amid concerns of potential money laundering and terrorism financing. A working group is drafting a policy document for a legal framework, which will be submitted to the Cabinet for approval. This move is in response to the country’s desire to enhance its financial system and avoid being grey-listed by the Financial Action Task Force (FATF).

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Saitoti Maika, Director General of the Financial Reporting Centre (FRC), highlighted the possibility of establishing a separate regulator for virtual assets to address the risks associated with unregulated crypto trading. He emphasized the importance of regulation to avoid penalties, acknowledging the need for Kenya to deal with evolving financial risks as the country becomes more sophisticated.

Identified loopholes in policing measures

The FATF, a global watchdog on money laundering and terrorist financing, has identified deficiencies in Kenya’s anti-money laundering systems. The country has been given a 12-month timeframe, ending in October 2023, to address these issues. Failure to do so could result in Kenya being added to the FATF grey list.

Despite Kenya’s increased use of cryptocurrencies, it currently lacks specific regulations for the crypto market. The Blockchain Association of Kenya (BAK) was tasked with developing the Virtual Asset Service Providers (VASP) bill in October 2023, and the draft was released for public comment in February 2024.

The lack of regulations has raised concerns over potential exploitation for money laundering and terrorism financing. Chainalysis, a blockchain analytics firm, ranked Kenya among the top countries in peer-to-peer cryptocurrency platforms. The absence of regulations leaves the country vulnerable, prompting the need for regulatory measures to enhance the integrity of the financial system.

Kenya’s move aligns with efforts to improve its financial standing within the FATF framework, joining other East African Community countries under increased monitoring. The country’s strategic importance as a regional business hub and its connectivity to East African economies necessitate robust measures to address evolving financial risks, including those associated with the use of cryptocurrencies.

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