Kenya

Retail_Trading_Status

Gray-Zone High Confidence

Analysis ID: #703
Version: Archived
Created: 2025-12-12 04:42
Run: aec6ef33...
History: View all versions
Workflow Stage: Step 1

Executive Summary

While Kenya recently enacted the Virtual Asset Service Providers Act, 2025, effective November 4, 2025, the regulatory framework is currently in a transitional 'gray zone' as no licenses have been issued. The Act formally legalizes crypto and designates the Central Bank of Kenya (CBK) and Capital Markets Authority (CMA) as joint regulators, but a joint notice from November 2025 clarifies that licensing will only commence after the National Treasury issues detailed implementing regulations. Consequently, while retail trading is legally recognized and taxed, operational access to the banking system remains restricted for crypto entities until they can obtain the requisite licenses.

Key Pillars

Primary Regulators: Central Bank of Kenya (CBK) for stablecoins and digital wallets; Capital Markets Authority (CMA) for exchanges and token issuance.
Licensing Requirement: Mandatory licensing for all Virtual Asset Service Providers (VASPs); operating without a license is now a statutory offense, though no licenses exist yet.
AML/CFT Compliance: Strict adherence to the Proceeds of Crime and Anti-Money Laundering Act, aligning with FATF Recommendation 15.
Taxation: A 10% Excise Duty on transaction fees (introduced by Finance Act 2025) replaced the previous 3% Digital Asset Tax (DAT).

Landmark Laws

Virtual Asset Service Providers Act, 2025 (Act No. 20 of 2025) - Enacted: 2025-10-21
- The primary framework legalizing and regulating crypto. It establishes a dual regulatory regime (CBK & CMA), mandates physical offices for VASPs, and sets strict consumer protection and AML standards. Effective from November 4, 2025.
- Source

Finance Act 2025 (Finance Act 2025) - Enacted: 2025-06-26
- Repealed the controversial 3% Digital Asset Tax (DAT) on gross transaction value and replaced it with a 10% Excise Duty on the fees charged by crypto platforms, effective July 1, 2025.

CBK & CMA Joint Notice on VASP Licensing (Joint Public Notice) - Enacted: 2025-11-18
- Clarified that while the VASP Act is effective, no licenses have been issued yet. Licensing will only begin once the National Treasury publishes the subsidiary regulations.
- Source

Finance Act 2023 (Finance Act 2023) - Enacted: 2023-06-26
- Initially introduced the 3% Digital Asset Tax (DAT). Although challenged in court, the Supreme Court upheld its legality in October 2024 before it was later replaced in 2025.

Considerations

Banking Access: Banks are historically barred from processing crypto transactions; this restriction is expected to lift only for licensed entities, which do not yet exist.
Taxation Shift: The move from a 3% tax on turnover (DAT) to a 10% tax on fees (Excise Duty) is seen as more industry-friendly but requires platform compliance.
Worldcoin Suspension: The activities of Worldcoin were suspended in 2023 due to data privacy concerns and remain a contentious issue pending full compliance with the new VASP Act.
FATF Grey List: Kenya's rapid push to regulate crypto in late 2025 is largely driven by the need to exit the FATF Grey List by addressing deficiencies in VASP supervision.

Notes

The analysis date is December 12, 2025. The regulatory status is rapidly evolving; once the first license is issued, the status will immediately shift to 'Allowed-Regulated'. The current 'Gray-Zone' classification is strictly due to the administrative lag between the Act's effective date (Nov 4, 2025) and the operational readiness of the licensing committee.

Remaining Uncertainties

When will the National Treasury publish the subsidiary regulations required to start the licensing process?
Will the 'fit and proper' requirements for licensing effectively exclude smaller local startups in favor of large international exchanges?
How will the transition from the 3% DAT to the 10% Excise Duty be enforced for peer-to-peer (P2P) transactions that occur off-platform?

Full Analysis Report

As of December 12, 2025, Kenya's cryptocurrency landscape is in a critical transitional phase, best classified as a 'Gray-Zone' despite the recent enactment of comprehensive legislation. The defining legal instrument, the Virtual Asset Service Providers Act, 2025 (Act No. 20 of 2025), was gazetted on October 21, 2025, and became effective on November 4, 2025. This Act explicitly brings virtual assets under the purview of the government, ending years of legal ambiguity where crypto was neither banned nor regulated. It establishes a dual regulatory framework where the Central Bank of Kenya (CBK) oversees stablecoins and digital wallets, while the Capital Markets Authority (CMA) regulates exchanges and token issuance.

However, the operational reality for retail traders and businesses lags behind the legal framework. On November 18, 2025, the CBK and CMA issued a joint public notice clarifying that although the Act is in force, no Virtual Asset Service Providers (VASPs) have been licensed. The regulators explicitly stated that licensing would only commence upon the issuance of subsidiary regulations by the National Treasury. This creates a temporary regulatory vacuum where the activity is legal in principle, but compliant operation is currently impossible. Consequently, the historical banking embargo—where banks were advised against facilitating crypto transactions—remains effectively in place for the time being, as banks await the list of licensed entities.

From a taxation perspective, the environment has stabilized. The controversial 3% Digital Asset Tax (DAT) introduced by the Finance Act 2023, which taxed the gross value of transfers, faced significant legal challenges and industry pushback. Although the Supreme Court upheld the legality of the Finance Act 2023 in October 2024, the government subsequently pivoted policy in the Finance Act 2025. Effective July 1, 2025, the 3% DAT was repealed and replaced with a 10% Excise Duty applicable only to the transaction fees charged by platforms. This shift aligns crypto taxation more closely with standard financial services.

International pressure has been a significant catalyst for these developments. Kenya was placed on the FATF Grey List in early 2024, partly due to the lack of regulation for VASPs. The rapid passage of the VASP Act 2025 is a direct response to FATF Recommendation 15. Until the implementing regulations are published and the first batch of licenses is issued, the market remains in a gray zone: the law permits trading, but the infrastructure to do so legally (through licensed local brokers with bank access) is not yet operational.

As of December 12, 2025, Kenya's cryptocurrency landscape is in a critical transitional phase, best classified as a 'Gray-Zone' despite the recent enactment of comprehensive legislation. The defining legal instrument, the *Virtual Asset Service Providers Act, 2025* (Act No. 20 of 2025), was gazetted on October 21, 2025, and became effective on November 4, 2025. This Act explicitly brings virtual assets under the purview of the government, ending years of legal ambiguity where crypto was neither banned nor regulated. It establishes a dual regulatory framework where the Central Bank of Kenya (CBK) oversees stablecoins and digital wallets, while the Capital Markets Authority (CMA) regulates exchanges and token issuance.

From a taxation perspective, the environment has stabilized. The controversial 3% Digital Asset Tax (DAT) introduced by the *Finance Act 2023*, which taxed the gross value of transfers, faced significant legal challenges and industry pushback. Although the Supreme Court upheld the legality of the Finance Act 2023 in October 2024, the government subsequently pivoted policy in the *Finance Act 2025*. Effective July 1, 2025, the 3% DAT was repealed and replaced with a 10% Excise Duty applicable only to the transaction fees charged by platforms. This shift aligns crypto taxation more closely with standard financial services.

Source Evidence

Primary and secondary sources cited in this analysis

New Cryptocurrency Rules Take Effect As Kenya Prepares For Licensing Of Virtual Asset Providers primary (news)

2025-11-18

"The Virtual Assets Service Providers Act, 2025... became effective on November 4, 2025... However, the CMA stated that while the Act establishes the legal groundwork for licensing, no virtual asset service providers have yet been licensed."

CBK: Licensing of crypto service providers to begin after new regulations are issued primary (news)

2025-11-18

"Consequently, the licensing of VASPs will commence upon issuance of these Regulations... no entity has yet received approval."

Kenya's Supreme Court upholds finance act, digital assets tax primary (news)

2024-10-30

"The Supreme Court of Kenya has ruled that the Finance Act 2023, which stipulates a 3% digital asset tax (DAT) on cryptocurrency transactions, is legal."

Understanding Kenya's new Excise duty on Digital Assets primary (analysis)

2025-07-01

"Effective July 1, 2025, Kenya has abolished the 3% DAT... and replaced it with a 10% excise duty on the service fees charged by platforms."

Kenya nears landmark crypto law to regulate digital assets secondary (news)

2025-10-06

"Under the revised bill, the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) will oversee licensing and supervision of virtual asset providers."