The Capital Markets Authority of Kenya (CMA Kenya) will accommodate crypto and blockchain startups to its sandbox, according to Chairman, Nicholas Nesbitt.
The Capital Markets Authority is charged with the responsibility of both regulating and developing an orderly, fair, and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.
One of the functions of CMA Kenya is to promote market development through research on new products and services, whereupon it has a regulatory sandbox.
The Capital Markets Authority Regulatory Sandbox is a tailored regulatory environment that allows for the live testing of innovative capital markets related products, solutions, and services with the potential to deepen and develop the capital markets prior to launching into the mass market.
Until now, CMA Kenya indicated that the sandbox considers any company incorporated in Kenya or is licensed by a securities market regulator in an equivalent jurisdiction, and intends to offer an innovative product, solution, or service in Kenya following a successful exit from the regulatory sandbox.
In 2021, the regulator disclosed that out of 24 applications submitted to the sandbox since March 2019, at least 9 have been related to blockchain technology and tokenization of real estate. However in this article we did, CMA admitted that they had faced several challenges with blockchain firms in the sandbox.
Some of the challenges they faced under Decentralized Finance (DeFi), blockchain, cryptocurrencies and its derivates, included:
Novelty and complexity of the concept
Insufficient information regarding the risk universe in this area
Lack of internal capacity to review these types of applications
Objections by Central Banks to issue cryptocurrencies
Fears around volatility affecting local currency
Concerns around cyber security and data safety
The challenge of multiple fintech firms providing a solution to solve the same common problem like e-KYC using blockchain
Live testing is conducted under a less onerous regulatory regime and is expected to attract fintech companies and existing capital markets intermediaries seeking to add value through the application of technology to financial services among other innovations.
The platform is meant to aid CMA Kenya’s understanding of emerging trends on financial technologies and provides an evidence-based tool for fostering innovation and regulation while at the same time allowing the regulator to remain vigilant to investor protection, financial stability, and integrity risks.