Virtual Asset Service Providers (VASPs) are key players in the world of cryptocurrencies and digital assets. They act as intermediaries that help people and businesses use digital money safely and efficiently. According to the Financial Action Task Force (FATF), a VASP is any individual or company that, as a business, performs one or more of the following for others: exchanging virtual assets for traditional money (fiat) or other digital assets, transferring virtual assets, storing or managing virtual assets, or providing financial services related to issuing, offering, or selling virtual assets.
Virtual assets are digital forms of value that can be used for trading, payments, or investments. They are different from digital fiat currencies, like the digital version of a national currency, and from securities, like stocks. By regulating VASPs like regular banks and financial institutions, authorities aim to prevent illegal activities such as money laundering or financing terrorism.
How VASPs Work
Virtual Asset Service Providers in Kenya and around the world provide the infrastructure that allows people to buy, sell, and use cryptocurrencies safely. They act as a bridge between traditional money and digital money. For example, VASPs allow users to convert cash into cryptocurrency (on-ramps) or turn cryptocurrency back into cash (off-ramps). This helps drive innovation in payments, remittances, and investment management.
VASPs also ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) rules. They verify the identity of users, monitor transactions for unusual activity, and securely store private keys, which are needed to access digital assets. This builds trust and protects users from hacks or losses. Additionally, in volatile markets, VASPs provide tools like price tracking, hedging options, and portfolio diversification to help investors manage risks.
Types of Virtual Asset Service Providers
- Cryptocurrency Exchanges
Exchanges are platforms where users can buy, sell, or trade digital assets. Centralized exchanges like Binance and Coinbase list trading pairs such as Bitcoin to USD and provide order books to match buyers and sellers. They also offer extra services like margin trading or staking, handle deposits and withdrawals, and charge fees for trades. These platforms must follow local regulations to operate legally. - Custodians
Custodians specialize in safely storing digital assets for clients. They use methods like multi-signature security, cold storage, and insurance to prevent theft or loss. Institutional custodians, such as Coinbase Custody or Fidelity Digital Assets, manage billions of dollars for corporations and hedge funds, ensuring compliance and audit trails. This is important for large investors who want to reduce the risks of managing their own digital assets. - Over-the-Counter (OTC) Desks
OTC desks serve high-volume traders who want privacy and minimal impact on market prices. Unlike exchanges, OTC desks arrange private, negotiated trades for large amounts of cryptocurrency, sometimes worth millions of dollars. Providers like Cumberland or Galaxy Digital handle settlements and compliance, helping institutions and miners move large sums safely. - Payment Processors
Payment processors allow merchants to accept cryptocurrency for goods and services. Companies like BitPay or BVNK integrate with e-commerce platforms and convert crypto to cash instantly to avoid price fluctuations. They manage fees, refunds, and cross-border payments, making it practical for businesses to use digital assets daily.
VASPs in Kenya
Kenya has established the Virtual Asset Service Providers (VASP) Act, 2025, which sets the rules for licensing and regulating companies that deal with virtual assets. The Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) will oversee these regulations. Although no VASPs have been licensed yet, all operators, including brokers, managers, and exchanges, will eventually need a license. This ensures transparency, protects consumers, and reduces financial crime risks.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.