Kenya’s fast-growing cryptocurrency sector is set for a major regulatory shift following the National Treasury’s release of draft Virtual Asset Service Providers (VASP) Regulations 2026.

The proposed framework marks one of the country’s most comprehensive attempts to bring order, transparency, and accountability to a largely unregulated digital asset ecosystem.

The draft rules, anchored in the Virtual Asset Service Providers Act, 2025, seek to formally license and supervise crypto-related businesses, including exchanges, wallet providers, token issuers, and other intermediaries.

For years, these entities have operated in a legal grey area, fueling innovation but also exposing investors to risks such as fraud, cybercrime, and market volatility.

At the core of the proposed regulations is a strict licensing regime. Only locally incorporated companies will qualify for full licensing, effectively locking out unregistered foreign players unless they first obtain compliance certification.

This requirement is expected to encourage international firms to establish a physical presence in Kenya, potentially boosting local investment and job creation, but also raising entry barriers.

Additionally, all VASPs will be required to maintain a physical office within the country, while directors and senior management must pass fit and proper assessments conducted by regulators.

This provision is aimed at improving accountability and ensuring that only qualified professionals manage digital asset platforms.

The regulations also introduce robust financial safeguards, particularly for stablecoin issuers. Companies offering stablecoins will be required to hold at least 30 per cent of customer funds in segregated accounts within Kenyan commercial banks.

The remaining reserves must be invested in highly liquid, low-risk instruments such as cash, central bank deposits, or short-term government securities. These rules are designed to prevent liquidity crises and protect users in the event of market shocks.

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For crypto startups, however, the new framework introduces additional compliance costs. A proposed 0.05 per cent transaction fee on token trades and a 0.5 per cent levy on successful virtual asset offerings could affect profit margins, particularly for smaller firms.

Industry players warn that while such fees may enhance oversight, they could also discourage innovation if set too high.

Another key provision is the outright ban on high-risk activities, including transactions that obscure the identities of participants.

This aligns Kenya with global anti-money laundering (AML) standards but may impact privacy-focused crypto services that rely on anonymity as a core feature.

Despite these tighter controls, the regulations could ultimately strengthen Kenya’s position as a regional crypto hub. The country already ranks among Africa’s most active digital asset markets, driven by widespread mobile money adoption and a young, tech-savvy population.

Clear rules may attract institutional investors who have previously been cautious due to regulatory uncertainty.

However, the transition may not be seamless. Smaller operators and informal crypto traders could struggle to meet the new compliance thresholds, potentially leading to market consolidation where only well-capitalised firms survive.

The Treasury has opened the draft to public participation, inviting feedback from stakeholders across key cities, including Nairobi, Mombasa, Kisumu, and Eldoret. Consultations are expected to run through April 2026, after which revisions will be made before the final regulations are enacted.

If implemented in their current form, the VASP Regulations 2026 will fundamentally reshape the country’s crypto landscape, balancing innovation with oversight, and risk with opportunity in one of Africa’s most dynamic digital economies.