Regulator explores compensation mechanisms for virtual asset investors as digital markets expand and risks from platform failures grow
Kenya’s Capital Markets Authority (CMA) is considering the introduction of a dedicated investor protection framework for users of virtual assets, as the country’s rapidly growing cryptocurrency market continues to operate without the safety nets available in traditional capital markets. The move reflects increasing concern that retail investors in digital assets remain highly exposed when licensed intermediaries fail, despite the sector now falling under formal regulatory oversight.
Currently, Kenya’s investor protection regime is anchored in the Investor Compensation Fund (ICF), which provides limited compensation to equity investors in the event that a licensed stockbroker or investment bank becomes insolvent. However, this framework does not extend to participants in the virtual asset market, even when losses arise from the collapse of an exchange, custody failures, or operational misconduct by licensed service providers.
CMA Chief Executive Wycliffe Shamiah has acknowledged this regulatory gap, noting that the structure of the crypto market differs significantly from that of traditional securities trading. While both rely on intermediaries, virtual asset platforms involve unique custody arrangements, technology risks, and cross-border exposures that require a tailored approach to consumer protection. According to Shamiah, discussions are underway on whether a separate compensation fund or similar safety mechanism could be established specifically for virtual asset investors.
The regulator has stressed that any future framework would not cover losses stemming from normal market volatility, which is an inherent feature of speculative trading in cryptocurrencies. Instead, the focus would be on protecting users against failures by licensed intermediaries, such as exchanges, brokers, wallet providers, and custodians, whose collapse could leave clients unable to recover their assets.
These considerations follow the enactment of Kenya’s Virtual Asset Service Providers Act in late 2025, which formally brought crypto businesses under the CMA’s supervision. The legislation introduced licensing requirements, governance standards, and compliance obligations for firms operating in the sector, laying the groundwork for stronger consumer protection measures. With regulatory oversight now in place, attention is shifting toward the question of how to safeguard investors if a regulated virtual asset service provider becomes insolvent or is found to have mismanaged client funds.
CMA officials have indicated that virtual assets should not simply be folded into the existing Investor Compensation Fund, given the structural and risk differences between equity markets and digital asset markets. Instead, any compensation scheme would likely be developed as a standalone mechanism, with its own funding model, eligibility criteria, and payout limits.
As crypto adoption continues to rise in Kenya, driven by remittances, trading activity, and growing interest in blockchain-based financial services, the pressure on regulators to provide a clearer safety framework is intensifying. The CMA’s exploration of an investor protection mechanism signals a broader effort to balance innovation with market integrity, ensuring that as the virtual asset ecosystem matures, it does so within a structure that promotes confidence, accountability, and long-term stability.
