Kenyan MPs Challenge Plan to Keep Stablecoin Reserves in Local Banks
Kenyan lawmakers have raised concerns over a proposal that would require stablecoin issuers to keep a significant portion of their backing funds in local commercial banks.
The requirement appears in Kenya’s draft Virtual Asset Service Providers Regulations, 2026, which are intended to operationalise the Virtual Asset Service Providers Act, 2025.
Under Regulation 74, stablecoin issuers would have to hold at least 30% of the funds received in exchange for stablecoins in segregated accounts at commercial banks in Kenya. The remaining funds would have to be invested in secure, low-risk assets located in the country.
Members of the National Assembly’s Committee on Delegated Legislation have questioned whether the proposal would provide meaningful protection for Kenyan users or instead make the market less attractive to international stablecoin companies.
What Kenya’s proposed stablecoin rules require
The draft regulations introduce a broader set of requirements governing how stablecoins would be issued, backed, held and redeemed in Kenya.
Regulation 72 requires an issuer to fully back all stablecoins with reserve assets whose value is at least equal to the total nominal value of the tokens in circulation.
Permitted reserve assets would include:
- Cash and bank deposits
- Central bank reserve deposits
- Government securities with a remaining maturity of no more than 90 days
- Short-term repurchase agreements backed by eligible cash or bank deposits
The reserves would also have to remain separate from the issuer’s operating assets and be sufficiently liquid to meet redemption requests. Creditors would not be permitted to claim those reserves if the issuer became insolvent.
Regulation 73 separately requires reserve assets to be held by a custodian approved by the Central Bank of Kenya. Stablecoin issuers would also need arrangements ensuring that they could quickly access those reserves when users requested redemption.
The proposal drawing the most attention, however, is Regulation 74.
It states that at least 30% of the funds received from stablecoin customers must be held in segregated accounts at Kenyan commercial banks. It further says the remaining funds should be invested in secure, low-risk, highly liquid assets in Kenya.
For a fiat-referenced stablecoin, the reserves would need to be denominated in the same currency referenced by the token.
Why MPs are questioning the 30% requirement
Members of the Committee on Delegated Legislation reportedly questioned whether the local-bank requirement would add sufficient investor protection to justify the compliance burden it would place on issuers.
The concern is particularly relevant for large international stablecoin companies whose reserves are managed globally and may include cash, government debt and other highly liquid instruments held through foreign financial institutions.
Requiring such companies to move 30% of the reserves associated with Kenyan activity into local banks could force them to restructure their reserve arrangements specifically for Kenya.
Lawmakers questioned whether foreign issuers would find that commercially practical, especially because the draft framework applies to virtual-asset businesses operating “in or from Kenya,” including some firms without a physical presence in the country.
There are also questions about how the requirement would be calculated for a global stablecoin.
For example, it is not yet clear whether a foreign issuer would be expected to identify the exact number of tokens held by Kenyan users at any given time and then maintain 30% of the corresponding value in Kenyan banks.
Without further clarification, the rule could become difficult to monitor and enforce.
Could international stablecoin issuers avoid Kenya?
One risk identified during the parliamentary scrutiny is that major international issuers may choose not to seek a Kenyan licence if the cost of complying with local reserve requirements becomes too high.
Instead, they could continue serving users from foreign jurisdictions or restrict direct access to Kenyan customers.
That outcome could undermine one of the government’s wider objectives: bringing virtual-asset activity into a formal and supervised market.
The National Treasury says the proposed regulations are intended to create a safe, transparent and innovative virtual-asset environment. Its Regulatory Impact Statement identifies consumer protection, financial stability, legal certainty and responsible innovation as central objectives.
However, the same impact statement acknowledges that regulated businesses would face direct costs associated with licensing, capital requirements, reserve requirements, cybersecurity and compliance systems.
The debate is therefore not simply about whether stablecoins should be regulated. It is about whether the proposed rules achieve an appropriate balance between financial protection and commercial practicality.
The case for keeping reserves in Kenyan banks
The local reserve requirement may offer several potential advantages.
First, keeping some reserve funds within Kenya could give local regulators greater visibility over the assets backing stablecoins offered to Kenyan users.
Second, Kenyan authorities may find it easier to verify funds held in domestic regulated banks than reserves distributed across multiple overseas custodians.
Third, locally held reserves could potentially be accessed more quickly during enforcement, insolvency or consumer-redress proceedings.
The requirement may also help ensure that some of the funds generated from Kenya’s stablecoin market remain within the domestic financial system.
The draft regulations appear designed to reduce the risk that an issuer creates tokens without holding sufficient liquid assets to honour customer withdrawals.
This concern is addressed not only through the 30% rule, but also through full reserve backing, asset segregation, custody requirements and the right to redeem tokens at par value.
Why critics say the rule may be excessive
Critics may argue that Kenya’s proposal duplicates protections already included elsewhere in the draft.
An issuer would already be required to maintain full reserves, segregate those assets from company funds, use approved custodians and ensure that reserves remain sufficiently liquid to meet withdrawals.
Industry participants cited in local reporting argued that the 30% domestic requirement would add another layer of regulation on top of those existing obligations.
There is also a currency risk question.
Many widely used stablecoins track the US dollar. If reserves associated with those tokens must be invested in assets located in Kenya, issuers would need to ensure those assets remain denominated in the referenced currency.
Holding dollar-denominated reserves through Kenyan banks may be possible, but issuers could face additional banking, custody, liquidity and foreign-exchange costs.
The rule could therefore favour large, well-capitalised issuers while making it difficult for smaller companies to enter the regulated market.
MPs also questioned stablecoin redemption rules
The local reserve proposal was not the only part of the regulations that attracted scrutiny.
The draft says stablecoins must be redeemable at par value and that holders should be able to request redemption at any time.
Committee members reportedly argued that “at any time” was not sufficiently precise and could create disputes over how quickly an issuer must return a customer’s money.
A redemption request submitted outside normal banking hours, during a public holiday or while a transaction is undergoing compliance checks may not be processed immediately.
Lawmakers therefore sought clearer timelines and standards governing when an issuer must complete a redemption.
The question matters because the ability to exchange a stablecoin for its underlying currency is central to maintaining its value.
Kenya is building a broader virtual-asset framework
The proposed regulations form part of Kenya’s wider effort to establish formal oversight of virtual-asset businesses.
The National Treasury says the framework is intended to address risks including fraud, cybercrime, money laundering, terrorism financing, weak governance and consumer losses.
The regulations would cover areas such as:
- Licensing of virtual-asset service providers
- Stablecoin issuance
- Tokenisation platforms
- Virtual-asset exchanges
- Custody services
- Capital requirements
- Cybersecurity
- Consumer disclosures
- Anti-money laundering controls
The rules are meant to operationalise the Virtual Asset Service Providers Act, which was enacted in 2025.
Under the developing framework, the Central Bank of Kenya is expected to play a central role in supervising stablecoin issuers, while other parts of the market would fall under the appropriate regulatory authorities.
The regulations are not final
It is important to note that the local reserve requirement appears in draft regulations.
The fact that MPs have challenged or questioned the provision does not mean Parliament has rejected stablecoin regulation altogether.
It also does not mean the 30% rule is already being enforced.
The parliamentary review process may lead to amendments, clearer definitions or changes to how the reserve requirement is calculated before the regulations are finalised.
The final wording will determine whether international issuers can realistically comply and whether the framework makes Kenya more attractive or less attractive as a regulated digital-asset market.
