Kenya: Industry Groups Warn New VASP Rules Could Drive Startups Offshore

Kenya’s reputation as “Silicon Savannah” is facing a regulatory stress test. Industry lobby groups, led by the Virtual Asset Association of Kenya (VAAK), are warning that the Draft Virtual Asset Service Providers (VASP) Regulations 2026 contain “exclusionary” requirements that could force local Bitcoin startups to leave the country.

The draft rules, released by the National Treasury on March 17, 2026, are currently open for public feedback until April 10.

The High Cost of Compliance

The primary point of contention is the steep paid-up capital requirements. Under the proposed framework, startups must hold significant cash reserves before they can even apply for a license:

Stablecoin Issuers: Required to have up to $3.86 million (approx. 500 million Kenyan Shillings) in paid-up capital.
Other VASPs: Face varying but significant thresholds that industry leaders argue are “out of reach” for early-stage founders.

VAAK, which represents over 50 firms, argues that these costs—combined with mandatory insurance and high compliance fees—will create a market dominated only by a few large, well-funded players.

The “Offshore” Risk

Industry representatives warn that instead of protecting consumers, these barriers might actually do the opposite. If local startups cannot afford to operate legally in Kenya, they may:

Relocate: Move their headquarters to more “crypto-friendly” jurisdictions with lower entry barriers.
Go Underground: Continue serving Kenyan users via offshore, unregulated platforms that offer zero consumer protection.

A Dual-Regulator Approach

The draft regulations introduce a split oversight model that adds another layer of complexity:

Central Bank of Kenya (CBK): Will supervise payment-related entities, including stablecoin issuers and conversion rails.
Capital Markets Authority (CMA): Will oversee exchanges, brokers, and tokenization platforms.

While the government maintains that these rules are necessary to prevent money laundering and bring order to a “grey market,” founders worry that the lack of clear response timelines from regulators could drain their fundraising runways before they ever get licensed.

What’s Next?

The public consultation period ends on April 10, 2026. Nationwide forums are currently underway to gather stakeholder input. The final version of the regulations will be published in the Kenya Gazette following this period, at which point the CBK and CMA will officially begin accepting applications.