Kenya has emerged as a hotspot for cryptocurrency investment in Africa. Since 2015, the Central Bank of Kenya (CBK) has issued multiple warnings regarding the unregulated nature of cryptocurrency and the potential risks of fraud. These concerns have culminated in the drafting of the Virtual Assets Service Provider (VASP) Bill, 2025, part of Kenya’s broader efforts to exit the Financial Action Task Force (FATF) grey list, where it was placed on 23 February 2024.
The Bill was introduced to Parliament for its first reading on 8th April 2025. This shows Kenya’s intent to align its regulatory framework with international standards including but not limited to the FATF Recommendation 15 on virtual assets.
This legislative initiative could lay the groundwork for virtual assets to be formally recognized and accorded similar benefits to traditional assets. This is particularly timely given that, according to a 2024 CBK survey, nearly a third of Kenyan banks are prepared to engage in virtual asset-related activities. Furthermore, the 2024 Geography of Cryptocurrency Report by Chainalysis ranked Kenya 21st out of 155 countries for crypto adoption, underscoring the country's significant and growing involvement in the digital asset space.
This article examines whether the VASP Bill establishes a foundation for recognizing virtual assets as collateral within Kenya’s Movable Property Security Rights framework. It explores the potential use of tokenized assets in secured transactions, analyzes key provisions of the Bill, and considers international best practices particularly how banks are launching virtual asset tokenization platforms, conducting realtime collateralized transactions, and how regulators around the world are responding to these developments.
Analysis of the VASP Bill
The primary objective of the VASP Bill is to prevent money laundering, terrorism financing, and the financing of weapons proliferation. It aims to achieve this by establishing a legal framework to license and regulate the operations of Virtual Asset Service Providers (VASPs) within and from Kenya, considering the decentralized and cross-border nature of cryptocurrencies and their limited identity verification mechanisms.
The Bill introduces several key features, starting with important definitions related to virtual assets, including terms such as stablecoins and Non-Fungible Tokens (NFTs). However, it omits critical terms such as Initial Coin Offerings (ICOs), Initial Token Offerings (ITOs), and white papers. Instead, it provides a broad and somewhat vague definition for “Virtual Asset Offerings.” These omissions are notable, as the excluded definitions are essential for guiding public offerings, promoting investor understanding, and ensuring clear regulatory oversight. Their absence is particularly significant given that virtual asset offerings used to raise funds with an expectation of profit may fall within the scope of securities law, triggering the need for specific investor protection measures.
Furthermore, as virtual asset tokens are increasingly being recognized as eligible forms of collateral in traditional finance, the regulatory framework must not only clarify how such tokens are issued but also address the implications of their use in secured transactions. A well-defined framework is crucial to protect lenders, ensure legal certainty, and maintain broader financial stability as tokenized assets become more integrated into the credit and lending ecosystem.
The Bill gives regulatory powers to the Capital Markets Authority (CMA), the Central Bank of Kenya (CBK), and any other public body the Cabinet Secretary may choose. The Bill specifically assigns the CMA functions related to virtual asset investment advice, management, and overseeing public offerings, areas closely aligned with traditional securities regulation. However, the overlapping mandates between these regulators, poses a risk of confusion or duplication without a central body to coordinate the regulation of virtual assets.
The Bill further mandates that VASPs must be licensed by the designated authorities. It prohibits natural persons from acting as VASPs, allowing only legal entities registered under the Companies Act to act as VASPs. Consequently, violation of this provision may lead penalties, including fines and imprisonment.
Recognizing Virtual Assets as Collateral
While the VASP Bill does not expressly address the use of virtual assets as collateral, its indirect references and Kenya’s shifting financial landscape suggest a growing openness to their recognition in secured transactions.
Tokenized assets digital representations of real-world or intangible assets recorded on distributed ledgers are increasingly used to enable real-time, efficient collateralization. For Kenya to fully embrace this innovation, the legal regime must address how such digital assets can be pledged, perfected, enforced, and valued.
The Bill’s proposed amendment to the Capital Markets Act offers a pathway to recognizing virtual assets as securities, which may imply their potential use as collateral. However, express provisions and harmonization with Kenya’s Movable Property Security Rights Act (MPSRA) are necessary to ensure that such collateral rights are enforceable and properly registered.
Global Approaches to Virtual Assets as Collateral
Several jurisdictions have enacted pioneering legal frameworks that expressly recognize virtual assets as property and support their use as collateral in secured transactions. Kenya can draw valuable lessons from these comparative models:
Liechtenstein – The Blockchain Act (TVTG, 2020)
Liechtenstein’s law clearly defines digital assets and allows them to be used as collateral. It introduces a model where legal rights can be stored in a digital "token container," making it easier to transfer and secure them using trusted technology.
Switzerland – Distributed Ledger Technology Act (DLT,2021)
Switzerland created a legal category called "DLT securities," which are digital versions of financial instruments recorded on a blockchain. These can be used in secured lending, with legal protections for lenders and buyers acting in good faith.
Singapore – Project Guardian
Singapore’s central bank launched a sandbox project to test how traditional financial assets can be tokenized and used in digital finance. The project successfully ran real transactions using tokenized assets as collateral in loans and swaps, showing that the model works in practice.
United States – UCC Article 12
The Uniform Commercial Code (UCC) was revised to include Article 12, addressing the legal treatment of “controllable electronic records” (CERs), encompassing certain virtual assets like crypto tokens. These assets can be used as collateral by establishing control, giving legal certainty and enforceable rights to lenders.
Recommendations for Kenya
While the VASP Bill, 2025 primarily focuses on combating financial crime and regulating service providers, it represents an important shift toward formally recognizing virtual assets in Kenya. Although the Bill does not directly address their use as collateral, its provisions such as amendments to the Capital Markets Act suggest growing openness to integrating digital assets into the financial system. However, for virtual assets to be fully accepted as collateral, Kenya must update the MPSRA to explicitly include them as a type of intangible movable property.
Kenya can also learn from countries like Liechtenstein, Switzerland, Singapore, and the United States, which have implemented legal frameworks supporting the use of virtual assets in secured lending. Establishing regulatory sandboxes and a task force to oversee these developments will help build the necessary legal, technical, and institutional capacity. With the right steps, there is a clear path forward for recognizing and using virtual assets as collateral in Kenya’s financial system.
Disclaimer: This article is for general information only. The virtual assets sector in Kenya is still growing and changing. While the VASP Bill, 2025 shows progress, the laws around using virtual assets as collateral are not yet fully developed. Readers should not rely on this article as legal or financial advice and should consult a professional for guidance.
If you have any questions arising from this article, you can contact Kaplan & Stratton's intellectual property law team:
Esther Kinyenje – Opiyo, Partner
EWK@kapstrat.com
Georgette Thuku, Associate
GThuku@kapstrat.com
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