Kenya's Crypto Startups Fear Binance Influence Over New Regulations

Kenya's burgeoning crypto sector is embroiled in a contentious debate as local startups voice alarm over the country's proposed Virtual Asset Service Providers (VASP) Bill. The concern stems from the potential influence of a lobby group linked to Binance, the world's largest crypto exchange, which could sway the new regulations in favor of the exchange. The regulatory board proposed in the draft law includes a private think tank termed the Virtual Asset Chamber of Commerce (VAC).

Documents reveal that Binance has agreed to provide VAC with a monthly policy fee of 6,000 dollars per country. In return, VAC is expected to offer strategic advice, draft policy structures, and provide regular updates to Binance. This arrangement has raised doubts about VAC's independence and its ability to act in the best interests of the broader crypto community. Small crypto firms in Kenya are worried that this could be a backdoor for Binance to control the country's crypto regulations to its advantage.

Binance is already under intense scrutiny in several jurisdictions, including the U.S., Nigeria, and the U.K., for failing to comply with local laws. Kenyan startups are wary of giving Binance more influence, fearing that it could lead to lax regulation and unfair competition. They argue that if VAC, with its ties to Binance, gains a seat at the regulatory table, it could undermine fair market competition.

Stakeholders have warned that Kenya's global image could suffer if regulators favor one big player. There are concerns that the nation might remain on the Financial Action Task Force (FATF) and EU greylists, which could adversely affect Kenya's ability to attract new business and partnerships.

VAC, however, has defended its position, stating that it has been collaborating with key stakeholders, including the Parliament, the IMF, and the central bank, for two years to advocate for the industry's interests. VAC's director, Basil Ogolla, highlighted their success in scrapping a 3% transaction tax and replacing it with a 10% service tax. He also noted that over 90 percent of VAC's ideas are currently included in the Virtual Assets Bill. Ogolla emphasized that VAC is open to all crypto players and that its democratic structure gives equal voice to all members.

The Kenyan Finance Minister, John Mbadi, has expressed the government's desire for a transparent legal framework on crypto, aiming to manage risks while leveraging digital assets. Despite a previous ban on crypto, many Kenyans continue to use it daily. However, startups remain skeptical, fearing that VAC could develop regulations favoring large foreign companies and hindering the entry of local firms. Some argue that VAC employed a similar approach in Rwanda to establish control in that country's crypto market.

With the VASP Bill set to be voted on, the final decision will determine the future ownership of digital assets in Kenya and whether local voices will be adequately represented. The situation underscores the broader challenges faced by the crypto industry in balancing innovation with regulation, emphasizing the need for fair, transparent, and independent regulatory frameworks.