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Why Licensing Will Separate Leaders from Followers in Kenya’s Digital Asset Economy

Phelix K'Teya

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December 05, 2025

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Kenya’s passage of the Virtual Asset Service Providers (VASP) Act, 2025 marks a decisive turning point for the country’s digital finance ecosystem. What was previously an uneven field of innovators, experimental start-ups and offshore operators will now be reframed by a legal regime that makes licensing, supervision and compliance the price of admission to mainstream markets.

 

For companies that treat the new framework as a compliance burden to be endured, the VASP Act will be a transaction cost. For those that treat it as a business model and competitive edge, licensing will be a multiplier that builds trust, scales payments and wins enterprise-grade clients.

 

From where we stand at YoguPay, we see firsthand the strain companies face operating in a regulatory grey zone. Licensing and the obligations that come with it will soon be the decisive line between leaders and followers in Kenya’s digital asset economy. This article outlines the strategic steps market players should take now to navigate the evolving regulatory landscape with clarity and confidence.

 

From Informal Networks to a Regulated Market: Why Now Matters

For much of the last decade Kenya’s digital payments story has been defined by innovation outside traditional banking rails; M-Pesa being the most cited example. Crypto and virtual asset activity in Kenya has seen rapid adoption, with over 6.1 million users and a wave of entrepreneurial innovation, compelling regulators to respond carefully to safeguard market integrity.

 

The VASP Act brings that era to a close by creating a statutory licensing regime, designating the Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), and the Cabinet Secretary for Treasury as supervisors, and embedding VASPs within Kenya’s AML/CFT architecture.

 

The Act was published in the Kenya Gazette, assented in October 2025 and by law, commenced on 4 November 2025; regulators have since issued public notices clarifying that licensing will begin once subsidiary regulations and operational procedures are finalized.

 

The Kenya digital asset rule is not a regulatory theatre, as it grants supervisory powers, prescribes prudential and conduct obligations, and sets penalties for non-compliance. It also establishes transitional timelines: existing operators have a defined window to secure licenses and align processes.

 

Put simply, the market is moving from a voluntary to a mandatory systems architecture: those who can meet licensing standards will be able to do business openly and expand; those who can’t will either migrate to less regulated jurisdictions, pivot to non-regulated products, or wind down operations.

 

YoguPay is already aligning its infrastructure with forthcoming VASP requirements, ensuring every rail meets emerging licensing and compliance standards. This positions the company to scale its cross-border settlement network seamlessly as Kenya transitions into a fully regulated digital asset environment.

 

 

Licensing as a Market Signal for Trust, Scale and Institutional Access

In modern financial markets, licensing is not another legal box to tick. Having a regulatory license signal to digital asset stakeholders that a provider has been vetted and can be relied upon for custody, settlement, reporting, and AML safeguards.

 

In practice this signal unlocks three business advantages:

 

1 . Banking and on/off-ramp access. Kenyan banks and correspondent partners will be far more willing to integrate, provide accounts, or open fiat on/off ramps for licensed VASPs because licensing brings transparency and supervisory engagement. This reduces the counterparty risk and operational friction that currently chokes liquidity corridors.

 

2. Enterprise and PSP relationships. Payment service providers, remittance companies and multinational firms prefer regulated counterparties for settlement and treasury activities. A license converts a VASP from an experimental provider into a credible settlement partner for institutional flows such as payroll, supplier payments and cross-border remittances.

 

3.vCustomer trust and retail scaling. Consumers and SMEs are sensitive to fraud and unpredictability. Firms that can point to a Kenyan license and robust operational controls will see higher conversion rates and lower churn when onboarding customers who value safety over novelty.

 

A licensed VASP that secures reliable bank relationships and enterprise clients gains more transactions, which funds better compliance, which in turn strengthens its license position.  This transaction flow creates a virtuous cycle that is very hard for unlicensed competitors to replicate at scale.

 

The regulatory obligations that will shape winners

The VASP Act imposes concrete obligations that are both operational and strategic. Three areas will separate winners from late adopters.

 

1) AML/CFT, KYC and transaction monitoring

Under the Kenya crypto law, VASPs must integrate the full range of AML/CFT measures: robust KYC, enhanced due diligence, suspicious activity reporting and cooperation with investigative authorities. For many small operators this will require new tooling, experienced compliance personnel and real-time transaction monitoring.

 

Those who invest early in enterprise-grade AML/KYC pipelines will be able to serve high-value corporate customers and regulated counterparties; those who delay will be excluded from those revenue pools.

 

2) Custody, cyber resilience and operational standards

Licensees must “have in place adequate measures for safekeeping and protection of customer virtual assets,” maintain business continuity plans and meet cybersecurity reporting standards. These requirements raise the bar for custody models, insurance, key management and incident response.

Start-ups that professionalize custody or partner with regulated custodians, will reduce counterparty risk and attract institutional flows; substandard custody practices will increasingly be viewed as unacceptable.

 

3) Capital, governance and disclosure

The Act empowers regulations to set capital, solvency and reporting standards. Expect licensing to require audited financials, fit-and-proper vetting of directors, and governance frameworks that mirror traditional financial firms.

 

This tilts the game toward entities that can demonstrate financial strength and corporate governance. The winners will be those willing to operate with institutional-grade transparency.

 

 

Stablecoins and Cross-Border Settlement: The Strategic Prize

One of the clearest commercial opportunities created by licensing is in regulated stablecoins and settlement rails. Stablecoins, when issued or used in a regulated context, can dramatically reduce settlement latency and corridor costs for remittances, trade and corporate treasury operations.

 

Kenya’s Act explicitly contemplates regulation of stablecoins and gives regulators powers to prescribe modalities for issuance and use. Firms that obtain licenses to operate regulated stablecoin on/off ramps, custody and settlement services will be able to offer lower-cost, faster settlement that appeals to PSPs, remittance players and exporters. YoguPay and other market participants are already positioning compliance-first settlement rails as the commercial vector for stablecoins in Africa.

 

To put it simply, whoever builds compliant, bank-linked stablecoin rails in Kenya will capture the next wave of cross-border volume. That is a durable commercial advantage because it combines network effects with regulatory advantages.

 

Competitive Dynamics: Why Licensing Increases Concentration — But Also Creates New Entrants

Licensing inevitably raises fixed costs: tech upgrades, compliance teams, capital buffers and legal fees. Those costs will filter out a portion of the existing informal provider base, increasing concentration among better-capitalized firms. But concentration is not the whole story. Licensing also creates an opportunity for new venture models:

 

    • Compliance-first challengers. Start-ups that build with compliance baked in, can scale quickly because they sidestep retrofitting problems. These firms will look small at launch but can capture market share fast because institutional clients prefer regulated providers.
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    • Partnership plays. Incumbent fintechs and banks can partner with licensed VASPs to extend product sets; such as, tokenized FX and programmable payroll. These alliances create product differentiation that purely unregulated players can’t offer.
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    • Global entrants with local licenses. International players with resources may pursue Kenyan licenses to open regional hubs, accelerating sophistication and competition. That raises standards but requires Kenyan firms to innovate on customer experience and local relationships to compete effectively.

 

    In short, licensing will sort the market into providers that are prepared to fund and operate under supervisory expectations, and those that are not. Leaders will be defined by execution speed, capitalization, governance and the ability to turn compliance into commercial advantage.

     

     

    Systemic benefits: Consumer Protection and Financial Stability

    From the regulator’s perspective, licensing is not just about market control, but it’s about consumer protection and systemic stability. Clear rules reduce fraud, curb money-laundering channels and give authorities tools to manage contagion risk.

     

    For the economy, that means digital asset services can be safely integrated into payments, pensions, insurance and savings products. This integration increases financial inclusion while reducing regulatory uncertainty that previously deterred institutional investors. The net effect is a larger, safer addressable market for licensed providers.

     

    Practical Roadmap for Firms that Want to Lead

    If licensing will separate leaders from followers, the question is; how can investors position themselves as leaders? Below is a practical, prioritized roadmap.

     

    1 .Start the licensing process immediately. Even if subsidiary regulations are still being finalized, the Kenya Virtual Asset Act, 2025 gives a 12-month transition period. Virtual asset service providers can therefore begin governance, audit and documentation work: audited financials, board charters, compliance manuals, and fit-and-proper dossiers. Early applicants shape supervisory expectations and get a head start on operational changes.

     

    2. Invest in AML/KYC as a product capability. Prioritize real-time transaction monitoring, sanctions screening, and automated suspicious activity reporting, whether built in-house or through vetted partners. YoguPay already embeds these controls into every transaction, using systems that meet strict auditability and data-retention standards, ensuring partners stay aligned with emerging VASP requirements.

     

    3. Professionalize custody and incident response. Adopt multi-party computation (MPC) key management that meets Kenyan cybersecurity standards, insured custody solutions where possible, routine penetration testing, and a published incident response plan. Maintain clear segregation between client assets and proprietary holdings.

     

    4. Secure banking relationships early. Use a license to negotiate formal accounts and fiat rails. Demonstrate compliance artefacts and operational controls to banking partners; a licensed digital asset service providers with a bank connection becomes a preferred settlement counterparty.

     

    5. Design for auditable transparency. Ensure bookkeeping, transaction logs and reports are auditable. Transparent reporting is a competitive advantage with corporate and institutional clients.

     

    6. Build partnerships for distribution. Licensed VASPs should priorities integrations with PSPs, remittance aggregators and established fintechs; distribution beats product in early scaling phases. YoguPay already collaborates with leading PSPs and fintech partners to extend its settlement network, enabling faster reach, smoother onboarding, and broader market coverage for its clients.

     

    7. Consider modular compliance offerings. If your firm is not prepared to be a full-stack virtual asset service provider, consider offering licensed modules that larger players can plug into; such as custody, AML screening, and settlement rails.

     

    Following this roadmap won’t be inexpensive, but it will position firms to capture enterprise flows and premium margins that will shrink as the market consolidates.

    Policy Tradeoffs and What Regulators Should Continue to Get Right

    Licensing creates clear benefits but also introduces tradeoffs that regulators must manage to avoid stifling innovation:

     

      • Proportionality. Licensing requirements should be risk-based and proportionate to the scale and type of activity. Heavy-handed one-size-fits-all prudential standards risk excluding start-ups and harming competition.
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      • Clarity and transition. Clear subsidiary regulations, staging of prudential requirements, and public-private dialogue will reduce uncertainty. Regulators should publish roadmaps, supervisory expectations and guidance to help firms’ priorities compliance investments.
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      • Regulatory cooperation. Because virtual asset flows are cross-border, Kenyan supervisors should coordinate with regional and global counterparts to avoid regulatory arbitrage and to improve information sharing on illicit finance.

     

      If regulators strike the right balance between protection and proportionate supervision, Kenya can accelerate innovation while safeguarding consumers.

       

       

      What success looks like: Use-Cases that Will Reward Licensed Providers

      Licensed VASPs will find immediate opportunity in a handful of high-value use cases:

       

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        • Tokenized corporate treasury and payroll. Enterprises operating with suppliers across multiple jurisdictions will prefer licensed rails for programmable payouts and faster treasury operations.
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        • Institutional custody and tokenized assets. Pension funds, insurers and asset managers will require licensed custodians for tokenized securities and digital asset exposures.
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        • Regulated on/off ramps for global payments. Licensed VASPs that can reliably convert fiat to regulated stablecoins and back will become preferred settlement partners for global e-commerce and SaaS platforms.

       

        YoguPay already operates robust cross-border settlement rails that move value securely and efficiently. With the VASP Act enabling regulated stablecoin on- and off-ramps, YoguPay will seamlessly integrate these compliant rails into its infrastructure. This positions YoguPay as a trusted settlement partner for global e-commerce, SaaS platforms, and enterprise payments.

         

        YoguPay’s Take
         At YoguPay, we see Kenya’s VASP Act not as a regulatory hurdle, but as a launchpad for innovation in digital finance. Licensing and clear compliance frameworks create trust, unlock institutional partnerships, and enable scalable, efficient cross-border payments.

         

        What sets YoguPay apart:

         

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          • Banked and connected: Strong partnerships with regulated financial institutions ensure reliable, faster settlement rails for corporates and PSPs.
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          • Secure by design: Transparent processes, responsible product messaging, and proactive fraud prevention give users confidence in every transaction.

          For YoguPay, leadership in Kenya’s digital asset economy means turning compliance into opportunity; creating solutions that meet today’s regulatory standards while empowering partners to grow seamlessly tomorrow.

           

           

          Leadership Is a Product of Compliance-Driven Strategy

          The Kenya VASP Act transforms licensing from a regulatory formality into a strategic lever that separates leaders from followers in the digital asset economy. With the commencement of the Act and the ongoing development of subsidiary regulations, firms that invest in AML/CFT, custody, strong governance, and transparent audit trails will gain banking access, institutional partnerships, and customer trust.

           

          This approach transforms compliance into a clear competitive advantage; and those that delay or treat licensing as a checkbox risk shrinking their addressable market as institutional clients favor licensed counterparts.

           

          The YoguPay advantage is; we already leverage this regulatory clarity to empower our partners: our solutions integrate FATF-aligned KYC/AML protocols, Travel Rule readiness, and secure, bank-connected transaction rails, enabling seamless, compliant, and scalable operations in Kenya’s digital finance ecosystem.