Kenya’s crypto rules risk pricing out smaller firms and shrinking the market, says VAAK

Kenya’s draft rules for virtual asset firms will place a heavy burden on startups, who say high capital demands, costly insurance, and ongoing fees could push many of them out of the regulated market, according to Rober Salim, chief executive officer of the Virtual Asset Association of Kenya (VAAK), an industry group representing 50 crypto firms in the country. 

Salim noted that without changes, only a few large, well-funded players will be able to comply, while activity risks shifting back to informal and offshore platforms.

While the proposed framework is meant to bring order to a fast-growing sector and protect consumers, the industry group says the draft rules, as written, could instead narrow the field to a handful of big firms and shut out most local operators.

The capital requirements are the first hurdle. Virtual asset exchanges and wallet providers must hold at least KES 150 million ($1.15 million) in paid-up capital; tokenisation companies and digital token issuers KES 200 million  ($1.5 million); payment processors KES 50 million  ($385,000); brokers and managers KES 30 million  ($231,000); while stablecoin issuers face the steepest requirement at KES 500 million  ($3.85 million). Companies must also keep liquid reserves tied to their liabilities or operating costs.

For a market built around peer-to-peer (P2P) trading desks, small wallets, and early-stage fintechs, these numbers sit far above what most have raised. Many existing players would not qualify for a licence today, said Salim.

Insurance obligations may also compound the problem. Licenced firms must secure comprehensive cover for consumer assets, including theft, private key loss, operational failures, and cyber‑risk, from a Kenyan-licensed insurer or an approved foreign provider.

Cryptocurrencies exist as a fringe technology in most parts of Africa, leaving uninsured users exposed to the risk of digital asset use. Even globally, few users have crypto-specific insurance in cases of theft or loss. But Kenya’s regulator, as part of the proposed framework, is mandating coverage for consumer virtual assets.

Salim argues this creates an “insurmountable barrier” for dozens of smaller startups and brokers already operating without such protection.

Fees and levies turn compliance into an ongoing cost, not a one-off hit.

Virtual asset exchanges must pay licence renewal fees equal to 2% of prior-year gross income, or at least KES 2 million ($15,400).

Wallets and token providers—including tokenisation startups offering digital tokens backed by real-world assets, as well as businesses raising funds by issuing digital tokens—pay 0.15% of turnover or a minimum of KES 500,000 ($3,850). 

Kenyan virtual asset businesses must also pay upfront licence fees ranging from KES 500,000 to KES 2 million ($3,850–$15,400), depending on the category.

Combined with capital lock‑ups and insurance, Salim estimates that “over 90% of Kenya’s current informal or small‑scale operators will either exit the market, go underground, or fail to qualify outright,” leaving only the best‑capitalised regional entrants able to comply from the start.

The draft also aligns governance standards more closely with banking. Directors and senior managers must pass “fit and proper” tests, and firms are expected to install formal risk, compliance, and cybersecurity frameworks. 

That may be standard for global exchanges or bank‑backed ventures, but for startups that grew out of Telegram groups and small over-the-counter (OTC) desks, it marks a steep jump in complexity and cost. 

“[The draft regulations] would create a compliance wall so high and uncertain that almost every rational participant—global exchanges, local wallets, Kenyan startups, and even regional stablecoin experiments—would simply walk away or geo‑block Kenyan users,” Salim said. “The licenced, transparent market would shrink to near zero, while the underground market, with zero consumer protection, worse AML [anti-money-laundering] leakage, and higher scam risk, would explode.”

Kenyan startups stressed that they are not arguing against regulation. Rather, they are calling for a more proportionate approach that still protects users and meets Kenya’s AML commitments.

Salim also suggested that the National Treasury should substantially lower the capital thresholds in the Fifth Schedule and Regulation 82 of the proposed framework, keeping meaningful buffers while removing “the current prohibitive wall that would disqualify almost every existing Kenyan operator and most credible regional players on day one.”

Another proposal is a tiered regime for token disclosures, so smaller raises are not treated like full stock‑market listings.

“Kenya risks recreating an IPO‑level regime for even modest token raises,” Salim said. “A clear de‑minimis exemption [allowing low-value virtual asset services to bypass standard regulations] and ‘lite’ white‑paper tier would slash compliance costs by 70–80% while preserving investor protection.”

VAAK also wants clearer safeguards around discretionary powers to reject or revoke licences and to freeze or seize assets, including written reasons, timelines, rights to be heard, and independent appeal routes.

“Our ask is to convert the current open‑ended powers into structured, transparent, and reviewable processes,” Salim said. “Done right, the powers will protect the system; done wrong, they will drive legitimate business and capital offshore.”

While the draft framework suggests that regulators want to ensure only well‑run firms handle customer funds and data, while also addressing global concerns about fraud, hacks, and money laundering in crypto, Kenyan crypto firms counter. Without changes during the consultation, the rules risk hollowing out the very market Kenya hopes to domesticate.