Crypto Regulation in Kenya

In Kenya, cryptocurrency is primarily regulated by the following acts: (1) The National Payments Systems Act (NPSA); (2) the Capital Markets Act (CMA); and (3) the Kenya Information and Communication Act (KICA). The NPSA is administered by the Central Bank of Kenya (CBK). In contrast, the CMA is administered by the Capital Markets Authority (CMA). Finally, the KICA is administered by the Communications Authority. The scope of this article focuses on the CBK’s power to regulate cryptocurrency through the NPSA and through Kenya’s money remittance regulations.

Source: Freeman Law

The CBK is also authorized to regulate cryptocurrencies through Kenya’s Money Remittance regulations. Under these regulations, cryptocurrency companies must acquire licensing from Kenyan authorities to offer transmission services within Kenya. Licensing is required whenever a company offers a service for the transmission of money or any representation of monetary value without any payment accounts being created in the name of the payer or the payee, including: (1) where funds are received from a payer for the sole purpose of transferring a corresponding amount to a payee or another payment service operator acting on behalf of the payee; or (2) where funds are received on behalf of and made available to the payee. Therefore, virtually all cryptocurrency providers must be licensed in Kenya to legally operate within the country.

Source: Freeman Law

Digital assets fall under the scope of The Central Bank of Kenya (CBK) through legal avenues and broad discretion. While the Kenya Money Remittance regulations and the AML Act are the major laws that govern cryptocurrency trading, cryptocurrency regulation falls under three acts in Kenya [5] [6]: 

• The Capital Markets Authority (CMA), is the body in charge of regulating the securities public offering process through the Capital Markets Act. It is also responsible for detailing which assets are considered securities.
• The Central Bank of Kenya (CBK) on the other hand, supervises payment systems through the National Payments Systems Act – bringing all payment system providers under one regulatory roof, and ensuring the safety and security of each one.
• Finally, additional regulations like the Kenya Information and Communication and Data Protection Act administered by the Communication Authority, the Banking Act, and others are and/or might become relevant depending on the official treatment of digital assets in the future. 

Source: Scalable Solutions

Kenya, which also refused to endorse the inclusive framework’s agreement, unsuccessfully tried to expand its DST this year. The tax went live in January 2021 and was an integral part of the country’s COVID-19 financial recovery. The 1.5% DST was expected to raise about $45.8 million in the first half of 2021.

Kenya’s DST applies to a list of digital content and services, including downloadable e-books, films, and mobile applications; digital content streaming; subscription-based media; electronic ticketing sales; services provided through digital marketplaces; and online distance training. There is no revenue threshold.

At the time, the government said it hoped that the DST would expand Kenya’s tax base and level the playing field between companies that provide digital services and those that provide physical services, among other goals.

Source: Forbes

Under Kenya’s digital service tax, cryptocurrency transactions are taxed at a rate of 1.5%. Under the KRA’s formula, digital service taxes equals the gross cryptocurrency transaction value multiplied by .015. Under this formula, a transaction exchanging $10,000 worth of Bitcoin would be liable for $150 in digital service taxes. This formula suggests that cryptocurrency taxes in Kenya are substantially low.

Source: Freeman Law

Between local and international firms, it is far more burdensome for foreign exchanges to properly report their taxes to the KRA since international firms must remit their taxes every month. In contrast, local firms may claim back their digital services taxes at the end of the year because “they also pay other taxes within the Kenyan jurisdiction.” Despite this discrepancy in remittance obligations, the KRA has jurisdiction to collect taxes for local and international firms that offer cryptocurrency services in Kenya. Therefore, these amendments provide the KRA with broad powers to tax any digital marketplace that operates in Kenya.

Source: Freeman Law

While the CBK had remained mum after its notice in 2018, in an exciting turn of events, the CBK on 11 February 2022 issued a lengthy discussion paper that assesses the applicability of Central Bank Digital Currency (the CBDC) in Kenya’s retail space and cross-border payments (the Discussion Paper). The CBK has invited comments from the public on the Discussion Paper and this is a first step in initiating dialogue on the potential opportunities and risks of adopting the CBDC in Kenya. 

Source: ALN Africa

A gang of Kenyan students have been hacking foreigners’ email credit cards through email phishing, according to the country’s directorate of criminal investigations (DCI). The students create fake emails to steal the passwords and credit card information of unsuspecting victims before using the money in these credit cards to purchase bitcoin, which they then convert to Kenyan currency.

Source: TechCabal

To determine if a cryptocurrency is a security, Kenyan courts apply the Howey test. Under the Howey test, an investment classifies as a security if it involves a contract, transaction, or scheme whereby a person invests their money in a common enterprise for the expectation of profits derived solely from efforts of a third party. Since the Howey test involves questions of fact, whether a specific cryptocurrency is a security must be determined on a case-by-case basis.

In Wiseman Talent Ventures Limited v. Capital Markets Authority, Capital Ventures intended to raise funds by issuing an ICO. The court held that the ICO token constituted a security because it was a scheme that involved an investment of money in a joint enterprise with profits coming solely from the efforts of others. Generally, any ICO token that satisfies the Howey Test will be classified as a security and therefore under the CMA’s jurisdiction.

Overall, the goal of the CMA is to harness cryptocurrency’s potential while ensuring financial stability and mitigating the risk of money laundering and terrorism financing. The CMA also wants to battle the public perception that Kenya’s market regulations are outdated. The CMA declared that this perception cannot be battled unless Kenyan regulators demonstrate a willingness to accommodate cryptocurrency. Therefore, the policy of the Kenyan government is to provide up-to-date regulations and a favorable legal environment for cryptocurrency.

Source: Freeman Law

The Capital Markets Authority of Kenya (CMA Kenya) will accommodate crypto and blockchain startups to its sandbox, according to Chairman, Nicholas Nesbitt.

The Capital Markets Authority is charged with the responsibility of both regulating and developing orderly, fair, and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.

One of the functions of CMA Kenya is to promote market development through research on new products and services, whereupon it has a regulatory sandbox.

Source: Bitcoinke