The status of digital currencies in Kenya could be facing major upheaval as the country’s parliament deliberates over a new legislation that will confer the asset class as securities.
Kenyan journalist Julians Amboko broke the news via Twitter, noting that the bill is simply an amendment of the Capital Markets Act but would have significant consequences for digital currency. The bill proffered definitions of key terms such as “blockchain,” “crypto mining,” and “digital currency” while widening the scope of securities to include digital assets.
Crypto enthusiasts, draw your seats…
The Capital Markets (Amendment) Bill, 2023 sponsored by Mosop Member of Parliament, Hon. Abraham Kipsang Kirwa. In sum, it seeks to incorporate block chain, crypto & digital currencies into the purview of Capital Markets Authority
— Julians Amboko (@AmbokoJH) March 28, 2023
The bill grants the Kenyan Capital Markets Authority (CMA) to regulate digital currencies, including issuing and granting licenses for service providers. A screenshot of the bill showed that digital currencies can only be introduced to the Kenyan market if the CMA is satisfied that the assets underwent product development for at least 24 months with a user base of not less than 10,000.
Firms looking to operate in Kenya’s digital currency ecosystem must seek registration with the CMA, keep a proper record of all industry-related transactions, and make proper disclosures to the regulator. The disclosures include the value of digital assets traded in Kenyan Shillings, the date of the transaction, the type of digital asset, and any other ancillary costs.
Initial screenshots of the proposed law provide a six-month window for industry operators to seek registration when the bill comes into effect. Furthermore, the bill mandates the CMA to keep a “centralized electronic register of all transactions in digital currencies.”
The bill provides that Kenyan income tax rules will apply if digital currencies are held for under 12 months, while capital gains tax will be used when assets are held for a term exceeding 12 months.
The Joint Financial Sector Regulators, a coalition of leading Kenyan financial regulators, have been pining for comprehensive digital currency legislation since December 2022. A communique on the 13th annual meeting of the regulators saw digital currency occupy the crux of their deliberations, setting the stage for further legislative action.
Digital currencies and securities
In a bid to ensure a tight grip over the digital asset markets, countries are opting to view the asset class as securities. Indonesia broke the ice with a new law that gives the nation’s securities regulator wider powers over digital assets, signifying a transition from viewing them as commodities.
In the U.S., the SEC has been branding several digital currencies as securities on the grounds that they satisfy the requirements of the Howey’s test. However, the classification has stirred up uproar amongst industry players leading to a series of legal battles and the increasing exit of digital asset firms from the U.S.
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