Kenya has long occupied a unique position in Africa’s financial and technological landscape. As the birthplace of M-Pesa and a regional hub for fintech innovation, the country has repeatedly demonstrated an ability to leapfrog traditional systems and set new benchmarks for digital finance. Yet until recently, one critical area remained largely unstructured: the regulation of virtual assets and crypto-related services.

The enactment of Kenya’s Virtual Asset Service Providers (VASP) Act marks a defining moment for the country’s digital economy. For the first time, virtual assets, crypto exchanges, custodial wallet providers, and other related actors are being brought into a formal legal and supervisory framework. This shift signals not only regulatory maturity, but also a deliberate attempt to balance innovation with consumer protection, financial integrity, and global compliance standards.

Essentially, the VASP Act introduces the concept of licensed digital assets; covering crypto assets and services that operate within a regulated environment. This development has far-reaching implications for startups, banks, payment service providers, and cross-border infrastructure players. It also creates fertile ground for API infrastructure providers, Wallet-as-a-Service (WaaS) platforms, and cross-border settlement facilitators like YoguPay to enable compliant, scalable participation in the digital asset economy.

At YoguPay, we’ve seen firsthand the uncertainty around managing digital assets in a regulatory grey area. This article explores how Kenya’s VASP Act unlocks the next phase of crypto regulation, what it means for the broader financial ecosystem, and why infrastructure-layer providers will play a decisive role in shaping the future of licensed digital assets in East Africa and beyond.

The Shift From a Regulatory Grey Zone to Legal Clarity

Before the introduction of the VASP law, Kenya’s crypto ecosystem operated in a regulatory grey area. While virtual assets were not explicitly illegal, there was no dedicated framework governing their issuance, custody, exchange, or settlement. Regulatory bodies such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) issued cautionary statements, but lacked a unified legislative mandate to supervise the sector.

The Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) also began signaling clearer approaches to the taxation of crypto-related activities. They emphasized that virtual asset transactions could be subject to capital gains tax, value-added tax (VAT) where applicable, and income reporting obligations arising from crypto activities.

These measures were intended to bring crypto activity into the formal tax framework, even in the absence of comprehensive legislation. This regulatory direction included a shift away from the proposed 3% Digital Asset Tax, replacing it with a more moderate 10% excise duty applied to service fees, signaling a more pragmatic and accommodative approach to taxation.

The new crypto law addresses this gap by formally defining:

• • Virtual assets – as digital representations of value that can be digitally traded, transferred, or used for payment or investment purposes.
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  • Virtual Asset Service Providers – as entities offering services such as exchange between virtual assets and fiat, transfer of virtual assets, custody and administration of digital wallets, and participation in financial services related to token issuance.

By introducing licensing requirements, ongoing compliance obligations, and supervisory oversight, the Act moves crypto from the periphery of financial regulation into the mainstream. This transition is critical for institutional adoption, as regulated entities require legal certainty before engaging with digital assets at scale.

Licensed Digital Assets: A New Trust Framework

One of the most transformative aspects of the VASP Act is the emphasis on licensing. Licensed digital assets are not merely tokens operating on a blockchain; they are assets and services embedded within a regulated trust framework.

Licensing achieves several strategic objectives:

1 .Consumer Protection – Licensed VASPs must meet minimum standards for governance, risk management, cybersecurity, and custody of client assets. This reduces the risk of fraud, mismanagement, and sudden platform failures.

2. Market Integrity – Clear rules around disclosure, transaction monitoring, and reporting help curb market manipulation and illicit activity.

3. Institutional Confidence – Banks, payment institutions, and multinational corporates are more likely to engage with digital assets when counterparties are licensed and supervised.

4. Enhanced Transparency – Licensing requires regular audits, financial reporting, and disclosure of operational practices, fostering greater transparency for all stakeholders.

5. Regulatory Predictability – Entities operating within a licensed framework have clarity on compliance expectations, reducing legal uncertainty and enabling long-term strategic planning.

6. Investor Protection – Licensed digital assets are subject to safeguards such as segregation of client funds and secure custody, minimizing the risk of loss or misappropriation for retail and institutional investors.

7. Facilitation of Innovation – By establishing clear rules, the licensing framework encourages innovation within a secure and supervised environment, promoting sustainable growth.

8. Cross-Border Compatibility – Licensed assets and services can more easily integrate with international financial systems, supporting compliant cross-border transactions and partnerships.

In practical terms, this creates a bifurcation in the market: regulated, licensed digital asset services versus unregulated, offshore, or informal offerings. Over time, capital, partnerships, and user trust are likely to consolidate around the licensed segment.

Aligning Kenya with Global Crypto Regulation Standards

The Kenya Virtual Asset Service Providers law does not exist in isolation. It reflects Kenya’s intent to align with global regulatory standards, particularly those set by the Financial Action Task Force (FATF) on virtual assets and virtual asset service providers.

Key alignment points include:

• • AML/CFT Compliance – Mandatory Know Your Customer (KYC), transaction monitoring, and suspicious activity reporting.
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  • The Travel Rule – Requirements to collect and transmit originator and beneficiary information for virtual asset transfers.
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  • Risk-Based Supervision – Proportional regulatory oversight based on the nature, scale, and risk profile of VASP activities.
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  • Data Security and Privacy Standards – Adopting best practices to protect client information in line with international frameworks.
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  • Governance and Operational Resilience – Ensuring digital asset stakeholders maintain robust governance, audit, and operational continuity measures.
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  • Cross-Border Compliance Compatibility – Enabling seamless integration with other jurisdictions’ regulatory expectations.

By embedding these principles into domestic law, Kenya positions itself as a credible jurisdiction for compliant crypto businesses. This alignment is particularly important for cross-border payment API and settlement providers; who must navigate multiple regulatory regimes simultaneously, while maintaining operational efficiency and trustworthiness.

In addition, the provisions of Kenya’s crypto law build on existing global frameworks such as the U.S. GENIUS Act and the EU’s MiCA regulation, outlining safeguards around token issuance, reserve backing, and user protection in the event of insolvency.

Implications for Banks, Fintechs, and Payment Service Providers

The formal recognition of licensed digital assets has significant implications for traditional financial institutions, fintech companies, and payment service providers.

Banks

For banks, the Kenya virtual assets bill opens the door to structured engagement with crypto-related services. This may include:

• • Providing fiat on- and off-ramps for licensed exchanges
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  • Offering custody or trust services in partnership with licensed VASPs
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  • Facilitating cross-border settlements using regulated digital assets
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  • Integrating digital asset payment rails for corporate clients
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  • Supporting tokenized asset investment products for wealth management

However, banks are unlikely to build this infrastructure from scratch. Instead, they will increasingly rely on API infrastructure providers and WaaS platforms like YoguPay to integrate compliant digital asset capabilities into their existing systems. This approach also allows banks to:

• • Reduce operational risk associated with managing crypto directly
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  • Accelerate time-to-market for new digital asset services
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  • Ensure compliance with evolving regulatory frameworks

Fintechs and PSPs

For fintechs and payment service providers, the Act creates both opportunities and competitive pressure. Licensed status can become a key differentiator, enabling access to banking partnerships, enterprise clients, and regional expansion.

At the same time, compliance requirements raise the cost of entry. This dynamic favors modular infrastructure models, where fintechs can leverage compliant APIs, embedded wallet infrastructure, and settlement rails provided by specialized infrastructure players rather than developing everything in-house.

Additional benefits include:

• • Lower upfront investment in compliance and custody systems
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  • Ability to scale quickly across multiple jurisdictions
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  • Enhanced trust with clients and partners by using regulated infrastructure
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  • Access to advanced reporting, analytics, and audit-ready systems
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  • Improved resilience through partnerships with experienced infrastructure providers

The Rise of API Infrastructure in a Regulated Crypto Economy

As regulation matures, value increasingly shifts from speculative trading toward infrastructure and enablement. In a licensed digital asset environment, multi-currency payment APIs become the connective tissue between regulated entities, blockchain networks, and end-user applications.

API infrastructure providers like YoguPay play a critical role by:

• • Abstracting regulatory complexity into standardized, compliant interfaces
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  • Enabling seamless fiat–crypto and crypto–fiat conversions
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  • Supporting transaction monitoring, reporting, and auditability
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  • Facilitating interoperability across wallets, exchanges, and payment systems
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  • Providing scalable frameworks to onboard multiple virtual asset service providers and partners simultaneously
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  • Enabling integration with RegTech solutions for compliance automation
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Rather than each VASP building bespoke compliance and settlement systems, wallet API providers in Africa like YoguPay allow the ecosystem to scale efficiently while maintaining regulatory consistency.

Wallet-as-a-Service (WaaS): Compliance at the Edge

Custody remains one of the most sensitive aspects of digital asset regulation. Under the Virtual Asset Service Providers Act, 2025, custodial wallet providers face heightened scrutiny around asset segregation, security controls, and operational resilience.

Wallet-as-a-Service (WaaS) models address these challenges by offering compliant, white-labeled wallet infrastructure that can be embedded into fintech apps, marketplaces, and enterprise platforms.

WaaS providers like YoguPay enable:

• • Secure storage and management of licensed digital assets
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  • Built-in KYC, AML, and transaction screening
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  • Configurable controls aligned with regulatory requirements
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  • Faster time-to-market for regulated products
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  • Enhanced customer trust through compliance assurance
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  • Streamlined integration with banking and payment partners

In a licensed environment, Wallet-as-a-Service stops being a mere technical convenience, and becomes a strategic compliance enabler and a foundation for scalable digital asset offerings.

Cross-Border Settlement: The Strategic Use Case

Kenya’s economy is deeply interconnected with regional and global markets through trade, remittances, and investment flows. Cross-border payments for businesses remain expensive, slow, and opaque, particularly for SMEs and emerging-market corridors.

Licensed digital assets introduce a powerful alternative settlement layer. When combined with regulatory clarity, they enable:

• • Near-real-time cross-border transfers
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  • Reduced reliance on correspondent banking networks
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  • Lower transaction costs and improved transparency
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  • Greater accessibility for SMEs and underbanked populations
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  • Seamless integration with regional payment rails and wallets

Cross-border settlement companies like YoguPay can leverage regulated digital assets to bridge local payment systems, banks, and wallets across jurisdictions. Importantly, the Kenya VASP Act 2025 makes such models viable by ensuring that settlement activities occur within a licensed, supervised framework, thereby enabling both operational efficiency and compliance assurance.

Risk, Supervision, and the Role of RegTech

Regulation is not static, and even as the VASP Act is being implemented, regulators will still refine supervisory practices, issue guidelines, and respond to emerging risks.

This evolution creates demand for regulatory technology (RegTech) solutions that automate compliance, reporting, and risk management. API-driven infrastructure allows real-time data sharing between VASPs, banks, and regulators, improving oversight without stifling innovation.

Infrastructure providers that embed RegTech capabilities into their platforms will be best positioned to support long-term regulatory alignment. Additional advantages include:

• • Automated risk scoring and early detection of suspicious activity
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  • Enhanced transparency and auditability for regulators and partners
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  • Simplified reporting that reduces operational burden on VASPs
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  • Integration with compliance dashboards for instant oversight
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  • Scalable frameworks that adapt to evolving regulatory requirements
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  • Improved data analytics to inform policy and strategic decisions
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  • Support for cross-border compliance through standardized interfaces

Payment infrastructure providers like YoguPay understand the complexities of maintaining compliance across multiple jurisdictions. That’s why YoguPay supports digital asset investors with seamless, scalable, interoperable, and compliant cross-border settlement solutions, enabling efficient transactions across diverse regulatory environments.

Challenges and Transitional Frictions

Despite its promise, the VASP regulations will not be without challenges:

• • Licensing Bottlenecks – Initial application and approval processes may be slow as regulators build capacity.
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  • Cost of Compliance – Smaller startups may struggle with increased regulatory overhead.
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  • Cross-Border Inconsistencies – Differences between national regulatory regimes can complicate regional operations.
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  • Operational Complexity – Integrating compliance, custody, and reporting systems can strain technical and human resources.
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  • Market Consolidation Pressure – Smaller players may face competitive pressure from larger licensed VASPs with advanced infrastructure.
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  • Talent and Expertise Gaps – Limited availability of skilled compliance and blockchain professionals may slow adoption.

These frictions reinforce the importance of shared infrastructure. By outsourcing complexity to compliant API, WaaS, and settlement providers like YoguPay, market participants can focus on product innovation, scaling operations, and enhancing the customer experience.

Kenya as a Regional Regulatory Anchor

By formalizing crypto regulation, Kenya has the potential to become a regulatory anchor for East Africa. Neighboring markets often look to Kenya for policy cues, particularly in fintech and digital payments.

A well-implemented VASP regime could:

• • Attract regional and international crypto businesses
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  • Encourage harmonization of digital asset regulations across East Africa
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  • Position Nairobi as a hub for compliant blockchain and digital asset innovation
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  • Foster partnerships between local fintechs and global crypto infrastructure providers
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  • Serve as a testbed for scalable, regulated digital asset solutions applicable to the wider region
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  • Enhance investor confidence in East Africa’s digital finance ecosystem

Infrastructure providers operating at a regional level, such as YoguPay, will be instrumental in translating national regulation into cross-border functionality and enabling seamless adoption across multiple markets.

Conclusion: Infrastructure Will Define the Next Phase

Kenya’s VASP Act marks a structural shift in how digital assets are perceived and integrated into the financial system. Licensed digital assets introduce trust, accountability, and scalability; prerequisites for mainstream adoption.

As the market transitions from experimentation to execution, infrastructure will determine winners and losers. Platforms like YoguPay, which provide API infrastructure, Wallet-as-a-Service (WaaS), and cross-border settlement capabilities, are not peripheral players, they are foundational to a regulated, interoperable digital asset economy.

By enabling compliant access, interoperability, and efficient settlement, these infrastructure layers unlock the true potential of crypto within a regulated framework. In doing so, they help Kenya move from being an early adopter of digital finance to a global reference point for responsible, innovation-led crypto regulation.

Visit www.yogupay.com or contact our sales team to learn how YoguPay can help you accelerate the development and deployment of regulated digital assets; backed by compliant infrastructure, regulatory trust, and seamless integration into the real economy.