IMF Urges Kenya to Establish Robust Crypto Regulations Amid Rising Risks

The International Monetary Fund (IMF) has called on Kenya to create a clear and predictable regulatory framework for its burgeoning cryptocurrency market, emphasizing the need to protect consumers and combat risks tied to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT).

In a technical assistance report released on January 8, the IMF highlighted the challenges posed by Kenya’s outdated regulatory landscape, which is currently ill-equipped to handle the complexities of the crypto market. The report follows a request from the Capital Markets Authority (CMA) of Kenya to address the growing concerns around crypto-related scams and financial crimes in the country.

Outdated Regulations and Rising Crypto Risks

The IMF noted that Kenya’s regulatory framework, designed for traditional markets, offers “limited and no legally binding” leverage over cryptocurrency activities. This gap has allowed a surge in crypto-related fraud and criminal activity, underscoring the urgent need for a comprehensive regulatory approach.

Consultations held in Nairobi revealed significant uncertainty and a lack of consensus among Kenyan lawmakers about how to effectively regulate crypto assets. The IMF advised that Kenya’s new framework should align with international standards while considering the nation’s unique challenges and opportunities.

“The development of this framework should consider the unique challenges and opportunities within Kenya’s crypto market, ensuring it is robust, transparent, and capable of fostering innovation while protecting consumers and maintaining financial stability,” the IMF stated.

Global Standards and Strategic Recommendations

The IMF’s recommendations align with established international frameworks, including the Bali Fintech Agenda (IMF/World Bank), the Financial Action Task Force (FATF) guidelines for AML and CFT, and the Financial Stability Board’s (FSB) Global Regulatory Framework for Crypto-Asset Activities.

Short-Term Recommendations (6–12 Months)

• Conduct empirical analysis to understand the crypto market’s dynamics.
• Foster collaboration and education among regulatory authorities.
• Clarify the scope of existing regulations to address ambiguities.

Medium and Long-Term Recommendations (12–24+ Months)

• Implement a legal and licensing framework for crypto businesses.
• Strengthen supervisory resources to enhance enforcement capabilities.
• Align Kenya’s regulatory framework with international standards to ensure consistency and effectiveness.

Defining Crypto Assets and Cross-Border Cooperation

The IMF also advised Kenyan authorities to move beyond surveys and questionnaires, recommending a more in-depth empirical analysis of the market. Clearly defining crypto assets under financial laws and avoiding conflicting terms like “digital currency” and “virtual asset” were emphasized as critical steps for ensuring legal consistency.

Additionally, the IMF stressed the importance of engaging with foreign regulators to address risks posed by international crypto exchanges operating in Kenya. Cross-border cooperation, the report noted, is essential for effective enforcement and managing global risks tied to cryptocurrency trading.

FGA Partners’ Efforts and Missed Opportunities

Notably, private equity firm FGA Partners attempted to assist Kenya in building a regulatory framework for crypto assets back in 2022. “Some form of regulatory framework was required in order to tackle not only digital assets but also the integration of blockchain into the land sector, we could’ve made an impact,” said Justin Belle of FGA Partners. However in the end those efforts were largely overlooked during a period of political transition in the country.

A Path Forward for Kenya’s Crypto Market

Kenya’s cryptocurrency market holds significant potential for fostering innovation and economic growth, but without a robust regulatory environment, it risks becoming a breeding ground for financial instability and criminal activity.

The IMF’s detailed roadmap offers a path forward, balancing innovation with necessary safeguards. As Kenya takes its next steps, the eyes of the global financial community will be on the East African nation to see if it can rise to the challenge and set an example for other developing economies grappling with the rapid rise of digital assets.

James Cullen
UCW Newswire