Kenya’s financial regulators have called for stronger consumer protection safeguards and more extensive oversight of digital financial services, following the recent enactment of the Virtual Assets Service Providers (VASP) Law.
The call was made during the 16th Annual Board Retreat of the Joint Financial Sector Regulators Forum, which had in attendance major agencies including the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA), Sacco Societies Regulatory Authority (SASRA), and the Kenya Deposit Insurance Corporation (KDIC).
The regulators lauded the revolutionary impact of virtual assets and other financial technology innovations in improving financial access for consumers.
At the same time, they noted its inherent challenges, particularly surrounding consumer protection, financial stability, and risk management, calling for continuous monitoring, proactive risk management, and targeted research to balance innovation and security.
“Innovative products enhance inclusion and efficiency but bring new regulatory and systemic risks that demand proactive mitigation.”
The forum emphasized the importance of improving Anti-Money Laundering (AML), Countering Financing of Terrorism (CFT), and Counter Proliferation Financing (CPF) rules. It suggested that the VASP Law should follow international best practices, including support systems like emergency funds to help consumers during tough times.
At the forum, third-party reliance was identified as a critical area of vulnerability. They noted that a high level of third-party dependency amidst operators could lead to a concentration of risk, hindering delivery of service and operations.
The forum further examined the recent integration of artificial intelligence and machine learning in the delivery of digital financial services, praising its added efficiency to the delivery of financial services.
However, they noted the unique challenges it occasioned, including widening the existing technical knowledge gap and the creation of disparities in service delivery.
To that end, the Forum recommended the development of a National Strategy for Artificial Intelligence and Emerging Technologies in Finance to ensure robust oversight, ethical use, and interoperability with existing systems.
Will Kenya’s VASP Act Remove It from the FATF’s Grey List?
In October, the Financial Task Force released a report stating that certain African countries had been removed from the grey list. However, Kenya did not make the exit and remains on the grey list, making it subject to stricter due diligence requirements and increased investor hesitation.
A common trait shared by countries that successfully exited the list was the development and maturation of regulatory frameworks that aligned with global standards.
The Forum expressed confidence that Kenya could soon join the African countries that have exited the grey list once the VASP Law commences implementation and harmonizes with international standards.
Kenya’s Virtual Assets Service Providers (VASP) Law requires that operators register with the relevant regulator, maintain robust reporting systems, and comply with existing frameworks on cybersecurity and consumer protection.
It also establishes clear compliance guidelines for anti-money laundering (AML), counter-terrorism financing (CFT), and counter-proliferation financing (CPF) compliance for all digital asset service providers.
The law is currently in its transitional phase, with operators expected to register, apply for licenses, and familiarize themselves with its provisions. This phase is expected to last 18 months, while full implementation commences in 2027.
The VASP Act represents a progressive step toward effective regulation of virtual assets in Kenya. It provides for compulsory licensing and registration, designated supervisory bodies, and incident reporting mechanisms, among others. Adopting the recommended consumer protection and risk management measures will further strengthen these provisions.
By balancing innovation and security, the Act could enhance Kenya’s digital financial reputation and potentially pave the way for its removal from the FATF grey list.
