REGULATION | Kenya Retained on FATF Grey List – Crypto, Fintech Firms Face Rising Compliance Demands

Despite making substantial progress on financial crime laws and frameworks, Kenya remains on the Financial Action Task Force (FATF) grey list following the global watchdog’s February 2025 plenary.

The decision — reaffirmed by the European Union’s inclusion of Kenya in its own list of high-risk jurisdictions in June 2025 – underscores persistent gaps in regulatory effectiveness, particularly concerning digital finance and non-profit organizations.

The move carries wide-ranging consequences for fintechs, financial institutions, and virtual asset service providers (VASPs), who now face heightened compliance expectations as the country works to exit the list.

FATF Grey List: What It Means

The FATF grey list, or “Jurisdictions Under Increased Monitoring,” includes countries that have committed to addressing strategic deficiencies in their anti-money laundering (AML), counter-terrorism financing (CFT), and counter-proliferation financing (CPF) systems. While not subject to financial sanctions, grey-listed countries often face increased scrutiny from global banking partners, stricter due diligence, and reputational damage that can deter foreign investment.

For Kenya, this status means that even as legal reforms move forward, implementation remains weak. The FATF requires countries to demonstrate both:

• Technical Compliance – Adoption of legal, regulatory, and institutional frameworks aligned to FATF’s 40 Recommendations.
• Effectiveness – Practical results, such as increased detection, reporting, and prosecution of financial crimes.

Progress Made: Laws in Place, Frameworks Strengthened

Kenya has made commendable progress in closing its technical compliance gaps. According to the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the country improved its compliance rating across 28 of the 40 FATF recommendations, up from just three in 2022.

Key reforms include:

• Asset Recovery: Expanded powers for the Asset Recovery Agency (ARA) and Ethics and Anti-Corruption Commission (EACC) to trace and confiscate illicit wealth (R.4).
• Politically Exposed Persons (PEPs): New requirements for enhanced due diligence and source-of-funds verification (R.12).
• Wire Transfers and MVTS Regulation: Central Bank oversight of money remitters and new traceability rules for transfers (R.14, R.16).
• Beneficial Ownership Transparency: Legal reforms require companies to disclose and maintain accurate data on their true owners (R.24).
• Enforcement Powers: Broadened investigative authority for the Financial Reporting Centre (FRC), Central Bank, and law enforcement (R.30–31).

Much of this progress is anchored in the AML/CFT Amendment Act, 2023, which amended over a dozen laws, including:

• The Banking Act
• Capital Markets Act, and
• Prevention of Terrorism Act.

Remaining Gaps: Crypto Oversight and NPO Monitoring

Despite these gains, Kenya remains non-compliant in two critical areas:

1.) Virtual Assets and Emerging Technologies (R.15)

The FATF flagged Kenya’s lack of a legal framework for virtual assets (VAs) and virtual asset service providers (VASPs) – including cryptocurrency exchanges and blockchain platforms.

While the 2020 National Risk Assessment identified risks from crypto and fintech platforms, regulators have yet to establish registration, licensing, or supervision protocols for these entities.

This is a major shortfall considering Kenya’s growing role as a regional crypto hub, particularly in peer-to-peer trading and mobile-first digital wallets.

2.) Non-Profit Organizations (R.8)

FATF noted the absence of a risk-based approach to regulating non-profit organizations (NPOs) – a sector vulnerable to misuse for terrorist financing. Kenya has not identified at-risk NPOs, nor does it apply periodic reviews or sanctions for non-compliance.

February 2025: New Bills to Close the Gap

To address these concerns and exit the grey list, the government introduced the AML/CFT (Amendment) Bill, 2025, passed by the National Assembly in April and awaiting Senate approval.

Key Provisions:

• Crypto and Fintech Regulation
  • Crypto exchanges and fintech platforms are now defined as “reporting entities” under AML/CFT law.
  • Real-time transaction monitoring, risk assessments, and reporting obligations are proposed for VASPs.
  • The upcoming Virtual Assets Service Provider (VASP) Bill introduces licensing, supervision, and disclosure rules for virtual assets.
• Expanded Regulatory Scope
  • High-value asset dealers and NPOs with cross-border transactions face stricter scrutiny.
  • Institutions that fail to comply may face criminal liability, with senior executives potentially held personally accountable.
• Public Beneficial Ownership Registry
  • Will require businesses to disclose their ultimate beneficial owners in a publicly accessible database — a major transparency milestone.

Effectiveness Still Lags: Only 2 Out of 11 Outcomes Met

Kenya scored “low effectiveness” in 9 of 11 FATF Immediate Outcomes, meaning its legal reforms haven’t yet translated into strong enforcement, prosecutions, or real-world deterrence.

Without practical effectiveness, technical compliance alone will not be enough to exit the grey list. According to FATF timelines, Kenya’s next full mutual evaluation is set for 2031, though the country can apply for an earlier review if all action items are fulfilled.

What Crypto and Fintech Firms Should Do Now

With crypto regulation finally on the horizon, virtual asset firms, mobile money platforms, and fintech startups must proactively align with global standards:

Immediate steps include:

• Prepare for Licensing: Get ahead of VASP registration requirements, including board vetting and operational disclosures.
• Strengthen KYC/AML Controls: Implement real-time monitoring and reporting systems to flag suspicious activity.
• Conduct Risk Assessments: Evaluate exposure to money laundering, terrorist financing, and cross-border fraud.
• Engage Regulators: Stay involved in policy dialogue, pilot compliance systems, and provide feedback on draft legislation.
• Educate Staff and Users: Invest in compliance training for internal teams and awareness campaigns for users.

Kenya’s continued listing on the FATF grey list shows significant reform on paper, but limited enforcement in practice. For crypto and fintech players, this means tighter regulation is imminent.

The message is clear: build with compliance in mind or risk exclusion from Kenya’s formal financial ecosystem.

As Kenya moves to regulate digital assets and improve international confidence, proactive players in the blockchain and fintech space stand to gain legitimacy, attract investment, and shape policy – if they act early.

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