Kenya's draft regulations for virtual asset businesses have proposed stringent standards for stablecoin issuers, aiming to bring the country's growing virtual asset market under formal supervision. The proposed regulations, issued by the National Treasury, aim to address concerns that lightly regulated crypto activity can undermine anti-money-laundering safeguards. According to the draft, any firm issuing a stablecoin to the public must hold local fiat-backed reserves at all times in high-quality liquid assets, such as cash or deposits with commercial banks or the central bank. These reserves must be segregated from the issuer's own funds, held with an approved custodian, free from third-party claims, and available for immediate redemption.
Stablecoin issuers must also maintain a minimum paid-up capital of KES 500 million (approximately $3.85 million) and core or liquid capital of KES 100 million (about $771,000). Alternatively, they must hold capital equivalent to 100% of current liabilities for at least 30 days, whichever is higher. Tokens must be redeemable at par value on demand. The draft rules also prohibit the payment of yield on stablecoins, including indirect yield offered through other licensed virtual asset businesses.
The regulations further introduce a disclosure framework for initial coin offerings (ICOs), tokenised real-world assets, and stablecoins. White papers would be required to explain how a project operates, identify its management, outline how funds are managed, and detail how underlying assets are valued and held. They must also clearly set out key risks and refund rights. Boards of directors would be explicitly responsible for the accuracy of these disclosures, and issuers would be required to file updates with regulators and include clear warnings that such products are not covered by investor compensation schemes.
The proposed regulations have been met with concerns from industry players, with Robert Salim, chief executive officer of the Virtual Asset Association of Kenya (VAAK), stating that the disclosure and capital requirements are substantial.
The proposed regulations in Kenya demonstrate a commitment to regulating the virtual asset market and protecting consumers. However, the stringent capital requirements and disclosure framework may pose significant challenges for stablecoin issuers in the country. This could lead to a more cautious approach to issuing stablecoins, potentially limiting innovation in the market.
