The arrival of a dedicated Virtual Asset Service Providers (VASP) law marks a decisive turning point for regulators, innovators and compliance teams across jurisdictions that have long treated virtual assets as an afterthought. In Kenya, where digital finance is deeply woven into everyday life, the Virtual Asset Service Providers Act, 2025 (VASP Act) transforms regulatory uncertainty into a concrete compliance regime.

For stablecoin issuers and wallet providers the Act is not simply a new set of boxes to tick: it rewrites the operational, legal and risk-management playbook for how value is issued, stored and moved in the digital economy.

This article examines what the VASP Act changes for anti-money-laundering and counter-terrorist financing (AML/CFT) obligations, why those changes matter specifically for stablecoins and wallet providers, and how market participants should redesign controls and business models to be both compliant and competitive.

What Does the VASP Act Establish in the New Regulatory Baseline?

The Kenya Virtual Asset Service Providers Act (VASP Act) establishes a licensing and supervisory framework for operators of virtual asset services in and from Kenya. It designates clear oversight responsibilities, places licensing obligations on entities providing custody, transfer, exchange and issuance of virtual assets, and explicitly folds VASPs into the country’s AML/CFT architecture. The Act’s commencement and accompanying public notices make compliance obligations immediately relevant for existing players and new market entrants.

Beyond licensing, the Act sets into law operational expectations: segregation of client assets, minimum financial and governance requirements, custody safeguards, record-keeping, and cooperation with supervisory authorities.

In practical terms this means a cryptocurrency service provider can no longer argue that a blockchain’s decentralized nature absolves it of traditional compliance duties: the law attaches those duties to the legal entity that provides wallets, custody or payment rails to users.

The YoguPay difference is that we operate with structured governance, transparent custody workflows, and audit-ready transaction trails; positioning us to align seamlessly with the VASP Act’s licensing and supervisory requirements.

Why Stablecoins and Wallet Providers Are Disproportionately Affected

Stablecoins and wallet providers occupy two tightly linked layers of the virtual-asset value chain. Stablecoins are intended to function as predictable mediums of exchange or stores of value; wallets are the access points users rely on to custody, send and receive those coins. The digital asset law treats both as activities of regulatory significance:

• • Stablecoin Issuers — Particularly those offering redeemable, fiat-pegged tokens or payments-oriented coins, become subject to issuance, custody and capital requirements, and to the oversight powers of monetary authorities. Where a stablecoin promises convertibility into a fiat currency, the central bank’s interest is immediate: monetary stability, reserve adequacy and consumer protection are core concerns.
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  • Wallet providers — Whether custodial or non-custodial but operating services that facilitate transfers, are squarely within the definition of a virtual asset service provider, where they provide access to virtual assets on behalf of users. That subjects them to KYC, transaction monitoring, suspicious activity reporting and other AML/CFT obligations that used to be optional or ambiguous in many markets.

Combined, these shifts signal the end of the “crypto exceptionalism” era, where virtual asset firms escaped traditional financial compliance. Entities that market stablecoins or wallets to Kenyan users must now operate like regulated financial service providers.

YoguPay’s WaaS enables PSPs and remittance providers to integrate these controls natively, providing prebuilt KYC, AML monitoring, and secure custody workflows that streamline compliance and reduce complexity.

Key AML/CFT Obligations the Act Emphasizes

The Kenyan VASP Act 2025 integrates digital asset stakeholders into the existing AML/CFT regime in several practical ways that directly affect how stablecoins are issued and how wallets operate:

1 .Licensing and registration — Virtual asset service providers must be licensed to operate. Licensing enables supervisors to set entity-specific conditions, require proof of governance and capital, and refuse or revoke licenses where AML controls are inadequate. Licensing also creates a public perimeter, authorizing only licensed entities to credibly claim lawful status.

2. KYC and customer due diligence (CDD) — Wallet providers and issuers must identify and verify clients, apply risk-based enhanced due diligence for higher-risk customers, and maintain records for prescribed retention periods. This obligation applies whether the user is retail, a merchant or another intermediary. KYC becomes the front line in preventing illicit flows through stablecoins.

3. Transaction monitoring and suspicious reporting — Crypto service providers are required to implement systems capable of monitoring on-chain and off-chain transactions, detecting suspicious patterns, and filing suspicious transaction reports (STRs) with AML authorities. Considering stablecoins can settle thousands of transactions per minute, scalable monitoring with thresholding and behavioral analytics is essential.

4. Record keeping and traceability — The Act requires comprehensive record-keeping to enable reconstruction of transactions and source of funds inquiries. For wallets, this means storing transactional metadata, wallet-to-wallet linkage information and KYC snapshots in a way that respects privacy law but meets traceability requirements.

5. Safeguarding and custody standards — Issuers and custodians must segregate client assets, maintain adequate reserves for redeemable stablecoins, and adopt proven custody controls. These requirements reduce operational and fraud risk while making it harder for illicit actors to abuse convertible tokens.

6. Cooperation and supervisory reporting — The Act empowers supervisors to demand information, conduct inspections and publish enforcement outcomes. VASPs must therefore build responsiveness into their governance and legal teams.

One key YoguPay advantage is that our API infrastructure delivers embedded chain analytics, sanctions screening, and on-chain risk scoring; enabling VASPs to meet monitoring obligations efficiently without the need to build full surveillance stacks in-house.

Practical Implications for Stablecoin Design and Issuance

Stablecoin projects that wish to operate within the new legal framework must rethink token architecture and commercial design:

• • Reserve transparency and custody: Where a coin promises fiat backing or a basket of assets, issuers will be expected to prove reserve sufficiency and to segregate reserves or place them with regulated custodians. Independent attestations or audit reports — and possibly periodic supervisory inspections — will become standard. This raises the bar for issuers that previously relied on opaque reserve arrangements.
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  • Legal wrapper and issuer entity: To be licensable, an issuer needs a clear legal entity in a jurisdiction the regulator recognizes. Token code living in a smart contract is not a substitute for corporate responsibility. Issuers will therefore formalize legal wrappers, governance structures and contractual redemption mechanisms to meet both licensing and consumer protection tests.
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  • Redemption and float management: Regulations around reserve adequacy and segregation mean issuers must actively manage redemption risk and liquidity; a significant operational change from purely algorithmic or seigniorage-style designs that rely on market mechanics rather than fiat reserves. Supervisors will care about the convertibility promises an issuer makes.
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  • Cross-border considerations: Stablecoins by their nature enable cross-border flows. Regulators will want to ensure AML/CFT controls apply at on/off ramps; issuers must therefore plan for multi-jurisdictional compliance, or limit their service to licensed regimes. The new crypto law’s licensing approach gives Kenyan authorities levers to oversee cross-border service provision to Kenyan residents.

YoguPay’s value proposition lies in its auditable reserve-backed models and segregated liquidity accounts; offering stablecoin issuers a ready operational blueprint to meet new transparency and redemption requirements.

What Wallet Providers Must Change — From Product to Platform

Wallet providers are uniquely exposed because they touch customer identity, keys and transaction rails. The practical consequences are extensive:

• • From feature to compliance-first product roadmaps: New product features like swaps and fiat gateways must be designed with embedded compliance checks. That can mean onboarding flows that capture necessary KYC data, built-in sanctions screening at the API level, and risk scoring that gates feature availability.
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  • Custodial responsibilities: Custodial wallets holding assets on behalf of users will face capital, segregation and custody rules. Providers need certified custody practices, secure key management, and documented reconciliation processes to meet supervisory expectations. For non-custodial models, providers must still show how they minimize facilitation of illicit activity when they provide discovery, discovery assistance or transaction relaying services.
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  • Transaction monitoring adapted to on-chain realities: Monitoring should combine traditional AML signals, like unusual transaction spikes or high-risk new accounts, with blockchain analysis methods, such as grouping related wallets, identifying hidden identities, detecting coin mixing, and linking on-chain activity to verified user identities. Using chain analytics tools and internal data teams will become standard practice.
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  • Reporting and data management: Wallets will need robust data retention and secure channels to share STRs with authorities while complying with data protection laws, such as EU’s GDPR, and the Kenya Data Protection Act. Encryption, role-based access controls and audit trails become compliance requirements, not optional security features.

Wallet-as-a-Service platforms such as YoguPay support wallets with secure MPC key-management, custodial segregation, and compliance-first transaction orchestration; accelerating go-to-market for fintechs while meeting supervisory expectations.

Market Consequences: Costs, Trust and Competitive Dynamics

Stricter regulation inevitably drives up costs; compliance staff, technology, audits, and capital requirements are significant. But regulation also generates value:

• • Trust premium: Regulated stablecoins and wallet providers gain a trust advantage. For mainstream adoption, merchants, institutional partners, remittance corridors, counterparties will prefer tokens and platforms with regulated status and transparent reserves.
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  • Barriers to entry and consolidation: Smaller operators with consumer-grade engineering and weak compliance postures may struggle. Expect consolidation and a rise in specialized service providers for KYC, analytics and custody, that smaller wallets can integrate with instead of building in-house.
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  • Innovation within guardrails: Smart product design and “regulation-by-design” approaches will enable compliant innovators to reach scale. Firms that bake AML/CFT controls into SDKs, APIs and UX can offer both regulatory assurance and seamless user experiences.

This shift increases demand for infrastructure partners. API-infrastructure providers like YoguPay become essential, offering ready-made KYC, AML, custody, and settlement rails to help smaller VASPs meet regulatory thresholds without heavy engineering overhead.

Implementation Challenges and Enforcement Realities

Translating legal text into effective on-the-ground supervision is never frictionless:

• • Regulatory capacity: Supervisors must scale expertise in chain analysis, cryptographic evidence handling and cross-border investigative cooperation. Kenya, like other countries adopting VASP laws, will likely rely on technical assistance and private-sector partnerships to build this capacity quickly.
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  • Technology gaps and false positives: On-chain analytics are powerful but imperfect. Poorly tuned detection will generate false positives, burdening compliance teams and reporting centers. Firms must invest in iterative model tuning and human review to balance sensitivity and precision.
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  • Cross-jurisdiction friction: Many stablecoin and wallet users interact with global platforms. Reconciling differing reporting standards, privacy rules and evidence requests will require clear MOUs and cooperation frameworks between supervisors and foreign counterparts.

A practical Compliance Playbook for Stablecoin Issuers and Wallet Providers

For teams racing to adapt, the following practical next steps translate legal obligations into actionable priorities:

Legal and licensing readiness

Map activities against licensing categories in the VASP Act. Determine whether the business needs a full license or can operate under exemptions; if provided for in subsidiary regulations). Start license applications early; expect regulators to require governance, capital and a compliance program.

Governance, policies and a designated compliance officer

Appoint a senior compliance officer with direct board access. Draft AML/CFT policies, risk assessments and an escalation framework. Regulation increasingly measures competence, not just paperwork.

KYC and surveillance architecture

Build KYC flows that collect verified identity and beneficial ownership information. Deploy risk scoring that integrates on-chain and off-chain signals; ingest sanction lists and politically exposed persons (PEP) data. Integrate chain analytics for clustering and transaction risk scoring.

Reserve and custody controls (for stablecoin issuers)

Segregate reserve assets in regulated custodians where possible. Arrange for periodic third-party attestations or audits. Document redemption mechanics, float management and contingency plans.

Data, reporting and cooperation

Reinforce data retention, encryption and secure Suspicious Transaction Report (STR) submission channels. Create internal playbooks for regulator requests and preservation of blockchain evidence.

Vendor and third-party management

If you outsource KYC, analytics or custody, perform vendor due diligence and contractually secure data sharing, service-level agreements (SLAs) and audit rights. Supervisors will hold the VASP accountable for third-party failures.

User education and transparent disclosures

Communicate reserves, redemption rights and fees clearly. User transparency reduces regulatory scrutiny and builds commercial trust.

Public-private cooperation becomes critical. Cross-border settlement platforms like YoguPay already operate analytics-grade monitoring tools and can support regulators and VASPs in building reliable supervisory pipelines.

Policy Recommendations for Supervisors and Lawmakers

For the VASP regime to protect and enable innovation, policymakers should consider measured, pragmatic steps:

• • Proportionate, risk-based rules: Apply stricter rules where convertibility, custody and cross-border flows create real systemic risks; allow lighter touch for non-transferable tokens or low-value, purely utility tokens.
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  • Clear guidance and technical standards: Publish implementation guidance for KYC thresholds, travel-rule interpretations and reserve attestations to reduce uncertainty for firms.
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  • Capacity building and public-private partnerships: Regulators should build formal partnerships with private analytics firms, such as Chainalysis and Elliptic, and with independent auditors to quickly expand their investigative and supervisory capabilities.
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  • Cross-border collaboration: Enter into information sharing agreements with peer regulators to handle cross-border evidence requests and coordinated enforcement.

Partnerships with infrastructure companies like YoguPay can help supervisory bodies understand real-time settlement patterns, enhance evidence collection, and benchmark operational standards across VASPs.

Conclusion: Compliance as a Competitive Advantage

The Virtual Asset Service Providers Act, 2025 removes uncertainty and establishes stablecoin issuers and wallet providers as regulated financial actors, subject to the same expectations as payment and custody institutions. While this introduces higher compliance costs and may trigger short-term consolidation, it also creates a long-term trust premium. Regulated stablecoins and licensed wallet providers will be better positioned to win merchants, remittance partners, and institutional users who increasingly demand transparency and oversight.

As a WaaS enablement platforms, YoguPay demonstrates how compliant settlement rails and audit-ready infrastructure can turn regulation into a competitive advantage rather than a barrier. Visit our website or contact our sales team to learn how YoguPay can support your compliance-ready digital asset operations.