Kenya’s newly enacted Virtual Asset Service Providers (VASP) Act, 2025, which imposes tighter checks on digital financial transactions, could help the country exit the global financial crimes watchdog’s grey list, experts say.
Analysts at law firm Bowmans say the new rules mark a major shift by drawing cryptocurrency businesses into the formal financial system, aligning the country with global anti-money laundering standards set by the Financial Action Task Force (FATF).
The Paris-based FATF added Kenya to its list of countries under special scrutiny in February 2024 due to loopholes in countering money laundering and terrorism financing.
‘The Act marks a significant shift for Kenya’s digital economy. It brings virtual asset businesses into the formal regulatory framework through licensing, governance standards, and alignment with Kenya’s anti-money laundering regime,’ analysts at Bowmans said in a note on the VASP Act.
They said the new law could improve Kenya’s standing into a ‘more credible, investor-friendly market’ if effectively implemented.
When a country is grey-listed, its banks face tighter due diligence from foreign lenders, some international transactions are delayed, and investors flag compliance risk in country assessments.
Kenya hopes to be removed from the global financial crimes watchdog’s ‘grey list’ by May 2026 as it tightens its tools to detect and block illicit money flows.
‘Everyone should go do their work to ensure we are out of that grey list by May,’ Treasury Principal Secretary Chris Kiptoo said in February.
Kenya says it is sharpening its tools to detect money laundering and terrorist financing and aims to operationalise Anti-Money Laundering and Countering the Financing of Terrorism Committees.
Under the International Cooperation Review Group process, Kenyan financial institutions and designated businesses are implementing stronger Customer Due Diligence measures, including verification of beneficial ownership and monitoring of high-risk transactions.
The Treasury says financial institutions have also heightened Suspicious Transaction Reporting, with enhanced mechanisms to ensure timely reporting and analysis of suspicious financial activities.
Kenya has also adopted an inter-agency coordination approach involving the Directorate of Criminal Investigations (DCI), the Attorney General’s office, and select State departments as part of a strategy to clean up its financial services sector and exit the grey list.
Crypto oversight
The VASP Act places crypto businesses, including platforms dealing in Bitcoin, stablecoins and non-fungible tokens (NFTs), under the joint supervision of the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA).
Firms dealing in virtual assets are required to obtain licences, conduct Know Your Customer (KYC) checks, report suspicious transactions, and cooperate with agencies such as the Financial Reporting Centre (FRC) and the DCI.
Draft regulations further require stablecoin issuers to file monthly reports detailing transaction volumes, asset holders and reserve composition. Capital requirements range from Sh30 million for brokers to as high as Sh500 million for issuers.
The government has also proposed a 0.05 percent transaction levy on exchanges and token platforms.
Kenya’s crypto market has been expanding rapidly, driven by stablecoin use for remittances, merchant payments and cross-border transactions. Stablecoins are digital currencies whose value is pegged to assets such as the US dollar.
Recently, the country was ranked fifth worldwide by cryptocurrency transaction volumes in the 2025 World Crypto Rankings report by global crypto exchange Bybit. Data from US-based blockchain analytics firm Chainalysis shows that stablecoin transactions worth about Sh426.2 billion ($3.3 billion) were processed in the year to June 2024.
However, the sector has raised concerns among regulators due to its susceptibility to illicit activity, given the pseudonymous and decentralised nature of digital assets.
Industry pushback
Still, the government’s regulatory push has raised concerns among industry players, who say high capital thresholds, transaction fees and compliance requirements risk importing rigid frameworks from traditional finance into a nascent and globally competitive sector.
They argue that the rules could stifle innovation and push startups to more favourable regional jurisdictions.
‘When most of the local crypto startups have not even raised that much equity or debt capital, it becomes hard to do business here,’ Allan Kakai, director at the Virtual Assets Chamber of Commerce, told the Business Daily in a recent interview.
Bowmans cautions that while the legal framework aligns well with FATF standards on paper, its effectiveness will depend on implementation.
‘Practical enforcement, regulatory capacity, and coordination between agencies will be critical,’ the firm said, raising questions over whether CBK and CMA have the technical expertise and resources to supervise the complex and fast-evolving crypto sector.
‘How effectively will coordination work between the two regulators and other key agencies, particularly the Financial Reporting Centre?’
The FRC reported nearly Sh6.976 trillion in suspicious financial transaction reports over three years through 2023, with most (around 91 percent) funnelled through banks.
The report said money is laundered mostly through real estate, lawyers and accountants.