IN response to rising concerns over potential money laundering and terrorism financing, Kenya is gearing up to introduce new laws regulating cryptocurrency trading. A sectoral working group has been tasked with crafting a policy document outlining the legal framework, including provisions for regulating digital asset providers. Once completed, the proposal will be submitted to the Cabinet for approval.
This development comes as Kenya strives to fortify its financial system in anticipation of evaluations by the Financial Action Task Force (FATF), an international watchdog on money laundering and terrorist financing. Countries on the FATF’s ‘grey list,’ such as South Sudan, Tanzania, Uganda, and Sudan, face heightened scrutiny for possible financial crimes and terrorism financing. Kenya, as a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), seeks to steer clear of such scrutiny.
Saitoti Maika, the Director General of Kenya’s Financial Reporting Centre (FRC), emphasised the necessity of regulating cryptocurrency to mitigate risks. He hinted at the possibility of establishing a dedicated regulatory body for virtual assets, acknowledging the imperative to address the evolving landscape of financial transactions.
‘The more we fail to regulate, the more we risk being punished,’ Maika asserted, highlighting the importance of proactive measures in compliance with FATF guidelines. Kenya’s efforts to bolster its financial intelligence capabilities led to the establishment of the FRC, tasked with combating money laundering and terrorism financing.
Concerns about the opacity of cryptocurrency transactions and their potential impact on the financial system prompted Kenya’s recent focus on regulatory measures. Maika underscored the need for vigilance, stating, ‘As we become more sophisticated as a country, we have to deal with the risk.’
Following an assessment of Kenya’s anti-money laundering and counter-terrorist financing systems by ESAAMLG in 2022, the FATF identified areas requiring improvement and set a deadline for compliance. With the deadline expiring in October 2023, the FATF is poised to evaluate Kenya’s progress during its upcoming meeting. Failure to address identified deficiencies may result in Kenya being added to the FATF’s grey list.
Despite Kenya’s efforts to tighten regulations, cryptocurrency adoption is on the rise, aligning it with other African nations like South Africa and Ghana. Nigeria remains the continent’s leader in cryptocurrency transactions, highlighting the need for Kenya to establish comprehensive rules governing the crypto market to safeguard against illicit financial activities.