CBK Softens Stance on Crypto, Considers Regulation

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CBK Eases Stance on Crypto, Considers Regulation Friday, December 16, 2022

The Central Bank of Kenya. PICTURES | DENNIS ONSONGO | NMG

Financial industry regulators have softened their stance on cryptocurrency and recommended the formation of a technical committee that will create laws to regulate digital assets and companies in the industry.

The five regulators including the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA) and the regulator of Sacco companies (Sassra) recommended the formation of a committee to formulate the regulations.

In a statement on Friday, the CBK said the Joint Financial Sector Regulators Forum (JFSRF) had agreed to consider the National Treasury and Economic Planning recommendation to form a working group that will advise the CS of the Treasury on crypto regulation.

To consider the National Treasury and Economic Planning recommendation for the formation of a technical working group of relevant regulators to make recommendations to the Cabinet Secretary on the establishment of a comprehensive supervisory framework over the activities and crypto asset players in Kenya, read the statement.

These recommendations will follow extensive consultations and deliberations within the financial sector and other relevant stakeholders.

An estimated four million Kenyans, mostly young people and small traders, own the digital assets. In recent years, millions have flocked to cryptocurrencies hoping for quick returns, despite warnings from regulators like the Central Bank of Kenya (CBK) that EM assets can be high risk.

CBK Governor Patrick Njoroge has long argued that digital currencies pose risks to financial stability, arguing that they could solve problems such as integrating the poor into the financial system or reducing transaction costs. .

For its part, the CMA warned investors against participating in initial coin offerings (ICOs) that emerged in 2018, saying they had no regulatory oversight and that in the event of a loss, investors will not would therefore have no recourse.

The capital markets regulator has also locked crypto firms out of its fintech incubation platform launched in 2019, citing the high risks associated with internet-based digital currencies.

In February, the CBK invited the public to comment on the potential introduction of a digital currency to provide certain benefits, including reducing cross-border payment costs.

But crypto assets have proven popular in Kenya despite warnings from the central bank about their risks.

Blockchain analytics firm Chainalysis, which ranks countries on crypto adoption, has revealed that Kenya is among the top sellers of peer-to-peer cryptocurrency platforms, which allows merchants to transact directly with each other without the need for a centralized third party to facilitate transactions.

The push to regulate the sector comes amid a market downturn that has seen investors lose billions of dollars in investments. It also comes when the crypto industry is in turmoil following the collapse of the second largest exchange FTX.

The collapsed $32 billion crypto empire has been accused of mishandling investor funds, with some being used by disgraced company executives to fund lavish lifestyles in the Bahamas.

The crypto market, notorious for its wild price swings, has lost more than half its value since November last year as investors pulled money from riskier assets amid concerns over soaring inflation and rising interest rates.

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