Treasury hunts for cryptocurrency owners' identity in new bill
Kenya’s Treasury has introduced the Virtual Asset Service Providers (VASP) Bill, aiming to regulate the cryptocurrency sector. As cryptocurrencies’ popularity shoots through the roof, this bill seeks to track the owners of cryptos, basically altering the way of doing business with digital currencies by financial institutions, including those in the gaming sector.
The evolution of cryptocurrency regulation in Kenya
The trajectory of cryptocurrency regulation in Kenya has changed since December 2015, when the Central Bank of Kenya (CBK) made a public notice cautioning the public against transacting in digital currencies such as Bitcoin. This notice was made following the fact that cryptocurrency is decentralised, which means it is vulnerable to risks such as money laundering and terrorism financing. The CBK circular warned users that virtual assets were not legal tender in Kenya and provided no protection if the platforms collapsed.
Presently, there is a different perspective within the regulatory authorities. The Kenyan government is now preoccupied with establishing a regulatory framework that supports innovation and also ensures financial stability and consumer protection. This shift is seen in the new draft of the National Policy on Virtual Assets, which seeks the coexistence of digital innovation and regulation.
Frank Deya, Director at Betcoin, supports the importance of having regulations in place, “The Virtual Assets Service Providers (VASP) Bill in Kenya represents a significant step forward for the crypto industry, including the gaming sector. This regulatory framework brings much-needed clarity and legitimacy, which is crucial for building trust with users. As someone running a crypto sportsbook and online casino platform, I believe this approach is largely positive for the industry. It ensures that we can operate transparently and securely, which is essential given the growing popularity of crypto in Africa. The consumer protection measures and anti-money laundering provisions are particularly important, as they help safeguard users and maintain the integrity of the industry.”
The VASP Bill puts in place a formalised system in which all virtual asset providers, such as exchanges and wallet services, must be licensed by relevant authorities such as the CBK and the Capital Markets Authority. Aside from licensing, the bill also mandates compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) practices and emphasises the requirement for consumer protection and high levels of cybersecurity.
With the present dynamic regulatory reforms, the gaming sector in Kenya is set to experience significant changes.
Implications to the gaming industry
As cryptocurrency becomes popular in the iGaming sector, the implications of the Virtual Asset Service Provider (VASP) Bill are far-reaching and varied, and the issue of regulation and oversight has become a priority. By mandating licensing and adherence by virtual asset providers, the government is looking to promote consumer confidence, thereby bringing gaming businesses that utilise cryptocurrencies within the ambit of the law.
It is worth noting, however, that under the new VASP Bill, only legal entities will be permitted to carry out virtual asset businesses, thus effectively barring individuals. The provision implies that gaming companies will need to restructure promptly to meet the bill requirements. For example, companies would need to organise their business in such a manner that it demonstrates adherence to AML and CFT processes, which may translate into increased operating expenses since they incorporate the necessary security protocols.
“The bill also presents challenges, particularly in terms of compliance and licensing. These requirements will necessitate additional resources and infrastructure, but they are vital for the long-term success and credibility of our platforms. The regulatory sandbox provisions offer an exciting opportunity for innovation, allowing us to explore new technologies and business models. This will be crucial for staying competitive and meeting the evolving demands of our users. Overall, while there are hurdles to overcome, the VASP Bill sets a solid foundation for the growth and development of the crypto gaming industry in Kenya and across Africa,” Frank concurred.
A hit or miss?
The new legislation can initiate a significant wave of innovation in the gaming industry, especially in start-ups and financial technology firms that are incorporating virtual assets into their platforms. As gaming companies continue accepting cryptocurrencies as a method of payment, they can utilise the flexibility and borderless nature of digital currencies to develop improved experiences for customers. More regulatory clarity would bring more investment to these sectors as institutional investors pursue partnerships with compliant counterparties.
Yet, strict regulation can be taxing for companies currently working in a more lenient regulatory space. For example, companies that utilise stablecoins to facilitate transactions will need to re-engineer their business models under the new rules to maintain compliance without stifling growth. Furthermore, the bill’s focus on consumer protection means gaming sites must prioritise transparency and security.
This can potentially drive competition in the industry as companies contend to implement better security measures and a better user interface to appeal to more discerning consumers. The passing of the VASP Bill represents a landmark moment in Kenya’s crypto landscape and has profound implications for the gaming industry. While this new legal environment brings challenges, it also brings with it the promise of growth and legitimation. By taking a position at the forefront of cryptocurrency regulation, Kenya can improve its financial integrity while attracting a growing ecosystem of crypto-related businesses.
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