Kenya tightens grip on crypto with Sh500m capital rule

Cryptocurrency wallet. [File Courtesy]

Virtual asset service providers seeking to open shop in the country will need up to Sh500 million in capital under the proposed regulations by the government as it seeks to implement the Virtual Asset Service Providers (VASP) Act, 2025. 

Additionally, businesses will have to part with between Sh100,000 and Sh2 million for license fees.

The Act that came into effect in November last year paved the way for the government, through the National Treasury, the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA), in collaboration with the industry players, to come up with relevant regulations. 

The regulations are supposed to pave the way for the usage of virtual coins, such as cryptocurrencies, in the economy. 

In the draft regulations published by the National Treasury, renewal of the license has been pegged on the income or gross turnover of the businesses. 

The document shows the least paid-up capital for businesses in the space is Sh2.5 million. This is for a virtual asset investment advisor. Paid-up capital is the amount shareholders have to deposit to satisfy regulators that the business is capitalised before a license award is considered. 

The highest capital requirement, Sh500 million, is for service providers issuing stablecoins. 

“A licensee shall, at all times, have capital and other financial requirements of such nature and amount that are commensurate with the scale, risk and the complexity of the licensee based on its authorised activities,” the regulations read.

“A licensee shall, at the time of licensing and at all times thereafter, maintain core capital of not less than the paid-up capital prescribed in the Fifth Schedule to these Regulations.” 

The government’s strictness on capital requirements in the regulations extends to how the money is raised. 

The draft document states that paid-up capital will not include either unpaid, partly paid or commitments, shareholder loans or advances, capital raised through borrowed funds or revaluation reserves, nor will it be internally generated intangible assets. 

“Where a licensee intends to or has been authorised to carry out more than one virtual asset service, the licensee shall hold the amount of paid-up capital under this regulation for each licensed activity,” the regulations read. “The relevant regulatory authority may require a licensee to increase the paid-up capital under this regulation, as it may deem necessary, depending on the risk profile of the virtual asset service.” 

This capital, the regulations add, should not be subject to any contractual or legal restriction that impairs its ability to absorb loss. It shall also not be repayable, redeemable or callable at the initiative of a shareholder or third party. 

The regulations stipulate what a virtual asset service provider business should look like, from vision and mission to consumer protection. 

For example, when seeking a license, the submitted business plan should detail the nature and scope of services offered, the kind of technology deployed, data protection and privacy measures, compliance with anti-money laundering and reveal any outsourced services. 

The business plan should also have financial projections for the next three to five years, including income statements, statement of financial position and cash flow projections. 

According to the draft regulations, the least proposed license fee is Sh100,000. This is for a virtual asset broker or virtual assets investment advisor. The most is Sh2 million for a virtual asset exchange. 

A virtual asset wallet provider, virtual asset offering provider -initial coin offering, virtual asset offering provider – virtual asset tokenisation, virtual asset offering provider -token issuance, or virtual asset manager will part with Sh500,000. 

A virtual asset payment processor or a virtual asset offering provider -stablecoin issues will part with Sh2 million. 

“An application for the renewal of an authorisation shall be lodged with the relevant regulatory authority at least two months before the expiry of the authorisation,” the regulations read in part.