Kenya has taken a major step toward regulating the fast-growing digital finance space after the National Assembly passed the Virtual Asset Service Providers Bill, 2025, on Tuesday.
The Bill establishes, for the first time, a comprehensive legal and regulatory framework to govern the operation of companies dealing in virtual assets — including cryptocurrencies and related financial technologies.
Once signed into law, it will bring the industry into the formal economy, promote innovation, and enhance consumer protection while giving the State new powers to curb money laundering and other financial crimes.
The Bill now awaits presidential assent to become an Act of Parliament.
What are Virtual Asset Services?
Under the Bill, virtual asset services refer to any business involving the exchange, transfer, safekeeping, or administration of virtual assets, the umbrella term for digital representations of value that can be traded or transferred electronically.
In practical terms, these include cryptocurrency exchanges, wallet providers and platforms that facilitate buying, selling, or converting digital currencies.
The Bill describes a virtual asset service provider (VASP) as any company licensed under the Act to carry on such business in or from Kenya.
Only companies limited by shares — whether locally registered or foreign entities incorporated under the Companies Act — will be eligible to apply for a licence.
Individuals and unregistered entities will not qualify to be licensed.
This means that once the law comes into effect, all operators in the virtual asset space will have to obtain a licence from one of the designated regulatory authorities, which may include the Capital Markets Authority (CMA), the Central Bank of Kenya (CBK), or a newly created Virtual Assets Regulatory Authority.
The licensing process will ensure that all players meet strict standards of compliance, including anti-money-laundering (AML), consumer protection, and data privacy requirements.
Why the Bill matters
The move follows sustained pressure from the International Monetary Fund (IMF), which urged Kenya to put in place a clear regulatory framework for virtual assets amid growing risks of money laundering and financial instability linked to unregulated crypto activity.
Estimates indicate that more than four million Kenyans currently hold a virtual asset — mainly in the form of at least one type of cryptocurrency such as Bitcoin or Ethereum.
By formalising this sector, the government stands to generate substantial revenue through licensing fees while providing a safer environment for investors and users in the fast-evolving fintech landscape by oversighting transactions.
Kenya now joins other global financial hubs such as Singapore, the Cayman Islands, and Mauritius, which already have similar legal frameworks in place to oversee virtual assets.
Enhanced Investor Protection and Accountability
The Bill places significant responsibilities on licensed service providers when it comes to protecting consumers and maintaining financial stability.
Part IV of the Bill requires virtual asset service providers to safeguard client assets, obtain appropriate insurance cover, and maintain bank accounts within Kenya to allow easier oversight by regulators.
These measures are intended to prevent the kind of losses that have occurred in unregulated digital trading platforms worldwide.
Further, service providers will be required to establish internal policies to manage conflicts of interest and maintain detailed operational records.
This ensures transparency and accountability in every transaction and helps prevent fraud, insider abuse and operational misconduct.
Regulatory oversight and enforcement
The Bill significantly expands the powers of financial regulators. Part V gives regulators authority to supervise, inspect, and impose penalties on non-compliant operators.
It also promotes collaboration among domestic and international regulators to strengthen financial stability and fight cross-border crimes such as money laundering and terrorist financing.
Importantly, the Bill modernises Kenya’s existing compliance architecture by aligning its definitions and obligations with international financial standards.
It further broadens the traditional Anti-Money Laundering (AML framework to include Countering the Financing of Terrorism (CFT) and Countering Proliferation Financing (CPF), creating a full AML/CFT/CPF compliance structure.
This alignment ensures that Kenya’s approach remains consistent with global expectations, a key condition for continued engagement with international financial institutions.
What does the Bill say about Virtual Service Tokens?
The Bill draws a clear line between virtual assets and virtual service tokens, a distinction that has important regulatory implications.
According to the Virtual Asset Service Providers Bill, 2025, “a virtual service token is a digital representation of value that is not transferable or exchangeable with a third party and is used solely to provide access to an application or service.”
In simpler terms, a virtual service token functions like a digital pass — it lets the holder access a product or service but cannot be traded, exchanged, or sold to others, as is the case with say, bitcoin.
Examples might include in-app credits or reward points that work only within a single platform, where the more a customer buys, they earn coupons to apply to their next purchase for discounted sales.
Because they cannot circulate or hold market value, the Bill explicitly states that such tokens are not considered virtual assets under the Act.
Consequently, entities dealing exclusively in virtual service tokens will not require licensing. This distinction is critical.
By separating non-transferable utility tokens from tradable digital assets, the law avoids over-regulating ordinary software or reward systems while still capturing high-risk financial products under a robust regulatory net.
A step toward a safer digital economy
Once enacted, the Virtual Asset Service Providers Act, 2025, will mark a turning point for Kenya’s financial system.
It will legitimise the operations of crypto-related businesses, attract investment into the sector, and protect consumers who, until now, have operated in a largely unregulated environment.
By creating a transparent and secure framework, the Act is expected to boost confidence in digital finance and position Kenya as a regional leader in responsible fintech innovation.
As the Bill itself states, its purpose is to “promote innovation in digital finance while safeguarding consumers and maintaining the integrity of the financial system.”
If implemented effectively, the new law will bring order to a once-grey area of the economy — opening new revenue streams for the government while offering Kenyans safer, clearer ways to participate in the digital asset revolution.
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