BASIL OGOLLA: Kenya’s VASP Bill could rewrite the nation’s digital economy, if lawmakers get it right

Yet, the lack of regulatory clarity has kept banks, payment service providers (PSPs), and institutional investors largely on the sidelines. The VASP Bill promises to change this by providing a legal framework for licensing, oversight, and consumer protection, effectively signaling that Kenya is ready to integrate digital assets into its mainstream financial system.

At its core, the Bill is designed to bring virtual asset businesses under the supervision of regulators such as the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK). This could legitimize local Web3 startups in the eyes of investors, making it easier for them to attract funding, form partnerships, and scale operations. 

Major international exchanges like Binance and Yellow Card, which already operate in regulated environments elsewhere, may benefit from the certainty needed to plan long-term product roadmaps in Kenya. But the opportunity extends beyond the obvious players, smaller youth-led ventures, often armed with innovative ideas but lacking infrastructure, could finally gain access to critical banking rails and payment integrations that were previously off-limits.

Still, the Bill is not without risks. Stakeholders warn that if certain clauses, especially those related to decentralized platforms, are applied without technical nuance, they could inadvertently stifle innovation by treating open protocols as if they were centralized service providers. Cross-border and enforcement challenges loom large as well, since many DeFi projects operate globally with no physical presence in Kenya. 

Regulators will also need to balance consumer protection with fostering innovation, a delicate act that will depend heavily on implementation details and the consultative process that follows the Bill’s passage. This is particularly important for startups whose agility and experimental nature could be constrained by overly rigid compliance demands.

The Bill’s passage could also rewire relationships between Kenya’s crypto-native youth and the traditional financial establishments. For the first time, regulated banks and PSPs might have the legal comfort to collaborate openly with Web3 businesses, explore co-branded products, or even pilot blockchain-based infrastructure for foreign exchange and real-time settlement. 

With Kenya’s young population already deeply engaged in the digital asset space, from trading and staking to NFT creation, the legislation could catalyze a new wave of formal partnerships, job creation, and cross-industry innovation.

Tech reporter Benjamin Muriuki spoke to Basil Ogolla, Crypto lawyer and director at the Virtual Asset Chamber of Commerce (VACC) in Nairobi.

Q1: What key opportunities does Kenya’s VASP Bill present for youth-led Web3 startups and major players?

A: The VASP Bill, alongside the efforts of the vibrant crypto community and industry stakeholders, could serve as a pivotal catalyst for Kenya’s crypto ecosystem. When well-structured, the legislation will provide the legal clarity that Web3 startups need to operate openly and confidently. This legitimacy is crucial for attracting local and international investment, giving startups a stable environment to innovate and scale. The VACC and other stakeholders alike have played an essential role in the public participation process, enabling policymakers to craft balanced regulations that support growth while ensuring consumer protection.

For major players like Binance, the bill offers a clear regulatory framework that delineates permissible activities. This clarity helps such companies plan their long-term expansion strategies locally, reducing risks associated with regulatory uncertainty. Industry player contributions help ensure that regulations are both practical and forward-looking, aligning industry needs with national policy goals to foster a thriving digital assets market.

Additionally, the VASP Bill, could inspire local banks and fintechs to move beyond hesitation. Historically, many have been reluctant due to the lack of a legal signal, but with proper regulation, they might establish infrastructure and compliance protocols for licensed VASPs. This ecosystem development could provide vital on-ramps and off-ramps for crypto activities, unlocking new opportunities for innovative startups and established industry players alike.

Q2: Does the VASP Bill strike the right balance between consumer protection and fostering Web3 innovation, and what role does VACC play in this?

A: The intent behind Kenya’s VASP Bill is commendable, aiming to safeguard consumers while encouraging technological innovation. However, the language of the legislation must be carefully analyzed to prevent unintended consequences. There is concern that overly broad regulations, particularly regarding decentralization, could stifle the organic development of blockchain protocols and decentralized projects. At the  VACC, we have advocated for nuanced regulations that balance security with innovation.

As a policy think tank, we take initiative to be involved in providing technical insights and policy recommendations during public participation in legislative drafting processes. The involvement of various stakeholders is crucial in shaping regulations that are flexible enough to accommodate the rapid evolution of Web3 technologies while maintaining adequate protections for users.

Looking forward, I would emphasize the importance of technical consultations with industry during the implementation phase. These processes are vital for refining regulations to be both effective and adaptable. With further dialogue and expert input, final regulatory frameworks can achieve an optimal balance—inviting innovation without compromising the safety and rights of consumers.

Q3: How prepared is Kenya’s financial infrastructure, including banks and regulators, to support a legal crypto economy?

A: Kenya’s financial infrastructure is strategically positioning itself for a crypto-inclusive future. Banks have previously been cautious about operating in a legal gray area, but are eager for clear regulations that define permissible activities. It is my hope that we collectively support these financial institutions by providing guidance and helping them adopt best practices, helping them understand how to integrate crypto services responsibly.

Many Kenyan banks have already expressed interest in the space and could be moving to identify or source crypto expertise within or outside their compliance and innovation teams. We are happy to work together to monitor regulatory developments to stay aligned with emerging frameworks. Such proactive measures indicate that the banking sector is preparing internally to support crypto operations once the legal environment becomes more defined.

Finally, the coordination between Kenya’s central regulatory bodies—such as the CBK and CMA—is critical. We advocate for a collaborative approach, helping to ensure that oversight structures are clear, practical, and enforceable. Their role contributes to building confidence among financial institutions, so they can support a burgeoning crypto economy without unnecessary risk or uncertainty.

Q4: What challenges does the enforcement of the VASP Bill face with decentralized and cross-border platforms, and where do you see solutions?

A: Enforcing the VASP Bill against decentralized platforms presents a significant challenge, as these ecosystems often operate beyond direct regulatory reach. Most decentralized finance (DeFi) platforms do not have local representatives, making it difficult for authorities to enforce compliance or conduct investigations. I advocate for practical measures that can adapt to the decentralized nature of these platforms.

One potential strategy involves requiring local intermediaries—such as wallets, on/off-ramps, and exchanges—to monitor and restrict access to non-compliant services. While this approach has had its limitations and has previously raised privacy concerns, it represents a starting point for bridging enforcement gaps. The VACC continues to advocate for regulatory models that balance control with decentralization principles, emphasizing international cooperation and technology-driven oversight tools without overreach, instead of throwing out the baby with the bath-water.

Q5: How could the VASP Bill influence partnerships between youth-led Web3 startups and traditional financial institutions?

A: The enhanced regulatory clarity provided by the VASP Bill could unlock significant collaboration opportunities between youth-led Web3 startups and traditional financial institutions such as banks and payment service providers (PSPs). With a clearer legal framework, banks might feel more comfortable engaging with crypto-native entrepreneurs, leading to partnerships that could yield co-branded financial products, integrated payment solutions, and even strategic acquisitions. 

These collaborations would help bridge the gap between old and new financial paradigms, fostering innovation and expanding access to digital asset services. Ultimately, the bill could transform what was once a murky regulatory environment into a fertile landscape for mutually beneficial partnerships and sustainable growth in the Kenyan digital economy.