Central Bank of Kenya warns banks against dealing in cryptocurrencies

The Central Bank of Kenya (CBK) has warned against the use of cryptocurrencies in the eastern Afrikan country. The CBK issued a letter to banks and other financial institutions in Kenya warning them against accepting cryptocurrencies and being involved in transactions with entities related to cryptocurrencies such as cryptocurrency exchanges.

Speaking at Kenya's National Assembly Committee on Finance, Patrik Njoroge, Governor at CBK, is reported to have mentioned sending the circular out and added that it falls in line with other regulators globally.

β€œA banking circular was also issued to all banks by CBK cautioning them against dealing in virtual currencies or transacting with entities that are engaged in virtual currencies,” said Njoroge.

However, the claim that the warning is consistent with regulators globally is not correct. For example, to use an Afrikan example, the South African Revenue Service recently issued a statement giving guidance on how it will treat cryptocurrencies as far as tax is concerned. In the statement, SARS states that it will continue to "apply normal income tax rules to cryptocurrencies." This means that if you hold cryptocurrencies and realize a profit/loss from it, SARS requires you to declare this as part of your taxable income in South Africa. From a regulation perspective, and compared to Kenya, the decision by SARS is a sober and mature one which took into consideration current law (regulation) and realised that as much as the law of the country doesn't recognise cryptocurrencies as legal tender (currency), it does, however, make provision for cryptocurrencies to be considered as "assets of an intangible nature," thus allowing SARS to collect Capital Gains Tax (CGT) on them.

This is also not the first time that the CBK has issued the warning regarding cryptocurrencies, in 2015 it issued a similar warning regarding Bitcoin.

β€œThere are risks associated with cryptocurrency particularly on consumer protection, fraud, hacking and loss of data and they are prone to be used as pyramid scheme," said Njoroge.

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