New VASP Act Reshapes Digital Asset Landscape

On Tuesday, October 15, 2025, President William Ruto assented to the Virtual Asset Service Providers (VASP) Bill, 2025, marking a pivotal moment for Kenya's digital economy. The new law establishes a comprehensive legal framework for cryptocurrencies, stablecoins, tokenized assets, and Web3 innovation, positioning Kenya as a potential leader in digital finance regulation across Africa.

The Act primarily targets commercial intermediaries in the virtual asset space, such as exchanges, custodians, token issuers, investment advisors, brokers, and trading platforms. It does not regulate the underlying blockchain technology or private self-custody of digital assets, meaning individuals holding their own keys or engaging in peer-to-peer transactions remain outside the licensing regime.

Dual Regulatory Oversight and Compliance

The VASP Act introduces a dual regulatory framework, with oversight shared between the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). The CBK will be responsible for licensing stablecoins and other virtual assets, while the CMA will supervise crypto exchanges, trading platforms, and token issuances.

To operate legally in Kenya, Virtual Asset Service Providers (VASPs) must be registered as local companies or foreign companies with compliance certificates under the Companies Act. They are required to establish a physical office and an active bank account in Kenya, appoint a board of directors (minimum of two natural persons), and a competent CEO.

Licensed VASPs will face stringent compliance obligations, including capital and solvency requirements, fit-and-proper assessments for key personnel, robust Anti-Money Laundering (AML), Counter-Terrorism Financing (CFT), and Counter-Proliferation Financing (CPF) controls. They must also adhere to cybersecurity standards, implement consumer protection measures, and undergo regular audits.

Addressing Risks and Fostering Innovation

The legislation aims to mitigate risks associated with virtual assets, such as money laundering, terrorism financing, and threats to financial stability, while simultaneously fostering innovation in financial technologies.

A significant change introduced by the Finance Act 2025 is the repeal of the punitive 3% Digital Asset Tax on transaction value. Instead, Kenya will now levy excise duty on VASP fees, a move expected to be more favourable for savers and long-term holders.

The Act also introduces consumer safeguards, including mandatory Know-Your-Customer (KYC) verification, segregation of client funds, transparent disclosures, and mechanisms for dispute resolution.

Stakeholder Perspectives and Global Alignment

Kuria Kimani, head of the National Assembly's Finance Committee, highlighted that the new law is designed to balance safety and innovation, providing clear guidelines for both investors and businesses. He expressed hope that Kenya could become Africa's gateway for digital assets, attracting international crypto companies and fintech startups.

The VASP Act aligns with global Financial Action Task Force (FATF) recommendations and international best practices, signalling Kenya's commitment to cross-border virtual asset innovation while maintaining strict compliance standards.

However, some industry stakeholders had previously raised concerns about potential overregulation and heavy penalties, with fines for unlicensed operations reaching up to KES 10 million for individuals and KES 20 million for corporations, or imprisonment for up to 10 years.

Evidence/Data Box

• Effective Date: The Virtual Asset Service Providers (VASP) Bill, 2025, was signed into law on Tuesday, October 15, 2025, at 9 AM EAT.
• Regulatory Bodies: Central Bank of Kenya (CBK) for stablecoins and virtual assets; Capital Markets Authority (CMA) for crypto exchanges and trading platforms.
• Taxation: The 3% Digital Asset Tax on transaction value has been repealed by the Finance Act 2025; excise duty will now be levied on VASP fees.
• Penalties for Unlicensed Operations: Individuals face fines up to KES 10 million or 10 years imprisonment, or both; corporations face fines up to KES 20 million.
• Transition Period: Operators already active in the market will have a one-year transition period to comply with the new rules.

Unknowns and Controversies

While the VASP Act provides a robust framework, some areas remain to be fully clarified. The law does not yet explicitly define whether Non-Fungible Tokens (NFTs) are considered collectibles, securities, or intellectual property, which could have implications for their regulation.

Additionally, the law's domestic focus, without explicit links to regional frameworks like the African Continental Free Trade Area (AfCFTA) or global standards such as the EU's MiCA, could pose challenges for Kenyan crypto firms seeking to scale regionally or attract foreign investment.

What to Watch

Following Presidential Assent, the VASP Act will be gazetted in the coming days. Regulatory agencies are expected to issue detailed guidelines, application timelines, and operational requirements within the next six months. Existing crypto businesses will be required to register or risk closure.

Industry stakeholders will be closely watching how Kenya balances innovation with control, particularly as subsidiary regulations are developed to cover critical areas such as stablecoin issuance, tokenization of real-world assets, and investment advisory services.