In Kenya, a new framework for crypto regulation looms

The overnight collapse of FTX—the world’s third-largest crypto exchange—has jolted financial sector regulators in Kenya and around the world to put more focus on crypto activities.

FTX spectacular implosion has left millions of creditors staring at huge losses, and sent shockwaves through the crypto industry across the world.

FTX founder and CEO Samuel Benjamin Bankman-Fried, 30, was arrested this week while on the run in the Bahamas at the request of US federal prosecutors.

Regulating a highly volatile and decentralized system remains a nightmare for financial sector authorities.

Kenya’s Central Bank governor, Dr Patrick Njoroge has been asking citizens to avoid to peer-to-peer crypto deals warning that the sector is not regulated.

“A few years back, we had issued a warning to all Kenyans and even people beyond our borders that we were seeing significant risk from cryptocurrencies not because it was unregulated but because of services it was supporting, the majority of which were illegal transactions,” Dr Njoroge said during this year’s World Consumer Rights Celebration Day.

With the November implosion of FTX, however, there appears to be a change of strategy, and the Kenya government is set to regulate players in the industry.

Read also: Meta sued in Kenya for unchecked hate, violence on Facebook

The CBK, the Capital Markets Authority, the Retirement Benefits Authority, the Sacco Societies Regulatory Authority as well as the Insurance Regulatory Authority are preparing a recommendation to the Cabinet on how to keep teh crypto trade under close watch.

Together, these entities form the Financial Sector Regulators Forum (FSRF), a body that seeks to promote collaboration in areas of mutual interest including but not limited to the sharing of information, legal and policy issues as well as sector supervision frameworks.

In their latest update to the markets, FSRF is preparing recommendations to the Treasury for the establishment of a Technical Working Group of concerned regulators to make recommendations to the Cabinet Secretary on the establishment of a comprehensive oversight framework on crypto assets activities and players in Kenya.

“These recommendations will be subsequent to wide consultations and deliberations across the financial sector and other relevant stakeholders,” the statement following FSRF’s meeting in Kisumu notes.

In Africa, Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo have all banned the use of cryptocurrency.

According to blockchain data platform Chainalysis, Kenya, Nigeria, and South Africa have the highest number of crypto users in the continent with data showing people use crypto assets for commercial payments, but the virtual currency volatility makes it unsuitable as a reliable store of value.

Parliament is currently considering a proposed law that seeks to approve the taxing of crypto, Business Daily reported in November. The Capital Markets (Amendment) Bill, 2022 would provide for the payment of capital gains tax when crypto investors sell or use their crypto.

In the Central African Republic, however, Bitcoin has been designated as a legal tender just like in El Salvador, the smallest country in Central America.

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