The Road to April 10: Balancing Market Viability within Kenya’s Draft VASP Regulations

The draft Virtual Asset Service Provider (VASP) Regulations, 2026, represents a pivotal moment for Kenya’s digital economy. Following the 2025 VASP Act, these regulations arrive as the industry transitions from a decade of skepticism toward a formal legal structure. To refine this framework, the industry recently gathered for a strategic roundtable to dissect how these rules will determine if Kenya becomes a globally compatible, investable, and leading African virtual asset hub.

The historical context is vital for understanding the current urgency. Kenya’s journey reflects a gradual evolution from outright caution to structured oversight:

Where we came from: 2015 – The Central Bank of Kenya (CBK) issued a cautionary notice to financial institutions and the public, warning against the use of virtual currencies due to a lack of regulation and high risk.

2023 – The Finance Act, 2023 introduced the first specific fiscal measure: a 3% Digital Asset Tax (DAT) charged on the gross transaction value of all digital asset exchanges.

2024 – Kenya was grey-listed by the FATF in February, an event that accelerated the development of a formal VASP Bill to meet international AML/CFT standards.

2025 – Significant legislative milestones were reached:

The Finance Act, 2025 repealed the 3% DAT, replacing it with a more conventional 10% excise duty on fees charged by providers.

The VASP Act, 2025 was signed into law, establishing the primary legal framework that moved the country beyond mere tax collection into full-scale regulation.

It is important to remember that the Act serves as the broad framework. The current draft regulations are designed to provide the specific operational "how-to" on this foundation. For these rules to be effective, they require public participation. The industry has a deadline of April 10, 2026, to submit formal feedback to the National Treasury.

The High Stakes of Regulatory Design A primary concern remains the risk of "premature harvesting," where heavy fees stifle an industry before it matures. Participants at the roundtable pointed to India's regulatory experience, where aggressive taxation led to a massive exodus of capital. Kenya must ensure its regulations remain commercially viable for startups, not just established banks.

Current friction points in the draft include:

Licensing and Renewal Fees: The draft proposes renewal fees based on a percentage of turnover. In an industry where profit margins often sit in the single digits, this is viewed as a significant hurdle. A transition to a flat-rate renewal fee would provide the predictability businesses need to scale.

Capital Requirements: The draft suggests significant capital cushions, such as KES 150 million for exchanges and up to KES 500 million for stablecoin issuers. While high liquidity makes sense for those issuing stablecoins, applying similar hurdles to smaller service providers creates an insurmountable barrier for local innovators.

The Compliance Burden: The frequency of manual reporting is a major resource drain. For a small team, spending a majority of their time on regulatory filings leaves little room for actual compliance innovation. Tiered reporting, where high-volume requirements are reserved for Tier 1 institutions, would be a more balanced approach.

Rethinking Custody and Stablecoins The draft’s prescriptive nature regarding custody is another area of contention. It currently suggests that assets should move between addresses with a frequency that challenges standard business logic. Most global platforms use an Omnibus model for efficiency. Requiring specific custody infrastructure with unique signing ceremonies for Kenya alone ignores the reality of how global infrastructure is shared across borders.

Stablecoins also face a complex path. The roundtable questioned how Kenya will handle foreign issuers. A consensus emerged that instead of requiring every global issuer to register locally, the focus should be on regulating the local distribution points. This protects the consumer without creating a jurisdictional island disconnected from global liquidity.

Voices from the Special Envoy Ambassador Phillip Thigo, the Special Envoy on Technology, emphasized that regulation is a continuous work in progress. He noted that regulators require time to build capacity and understand these new asset classes. His message to the industry was clear: contributions during the public participation phase must be data-driven and backed by comparative analysis. Facts and evidence will be the currency that buys influence in the final draft.

Virtual Assets Chamber Wishlist As the April 10 deadline approaches, the Virtual Assets Chamber has outlined five strategic priorities to ensure the implementation of the Act supports growth:

Capacity Building: Technical training and resource allocation across different regulatory agencies to ensure they can oversee a complex, fast-moving sector.

Reciprocity and Passporting: Establishing mechanisms where licenses from jurisdictions with comparable standards are recognized, allowing companies to operate with less friction.

Ease of Business: Adjusting fees and capital requirements to be proportionate to the size and risk of the provider, ensuring the market remains accessible.

Resolving the Banking Deadlock: Addressing the "chicken and egg" scenario with the CBK, where a VASP cannot get licensed without proving capital, yet cannot open a bank account to hold that capital without a license.

Presidential Engagement: A session with the President of Kenya to formally recognize the sector and mark a new era for technology-led economic growth.

The goal is a principled approach. By focusing on outcomes like consumer protection and financial integrity rather than micromanaging technical architecture, Kenya can foster an environment that is both safe and innovative. While individuals are encouraged to submit their specific nuances directly to the National Treasury, they are also invited to make their submissions through the Virtual Assets Chamber to ensure a unified industry voice.