Financial Institutions Seek CBK Approval to Use Blockchain as Regulator Maintains Cryptocurrencies are Risky
The Central Bank of Kenya (CBK) has received applications from financial institutions that want approval and licensing of blockchain-based products and services according to governor Dr Patrick Njoroge.
Speaking during the Institute of Certified Investment and Financial Analysts’ (ICIFA) workshop at the Kenya School of Monetary Studies yesterday, CBK governor Dr Njoroge said: “A number of banks are currently working on products hinged on blockchain technology and we think that they offer a lot of promise.”
Currently, relevant regulators and stakeholders are investigating regulations for cryptocurrencies, blockchain technology, and forex online trading.
Blockchain, the underpinning bitcoin technology has the potential to improve many banking tasks such as identity management, clearing and settlement, trade finance, and payments.
During the workshop, Dr Njoroge emphasised the regulator’s determination to focus on the risks involved above everything else.
“We are not anti-innovation or anti-crypto currency. We support innovation but are concerned about the impact on financial instability and the inherent risks. CBK is working with central banks all over the world to identify the risks and find ways to mitigate them. The weakest link is where problems in our financial system will start,” he said.
Last month, CBK issued a circular to Kenyan banks warning them against cryptocurrencies and doing business with firms dealing with cryptocurrencies.
“There are risks associated with cryptocurrency particularly on consumer protection, fraud, hacking and loss of data and they are prone to be used as pyramid schemes,” Dr Njoroge said.
In a recent soundness report for Q1 2018, the Capital Markets Authority (CMA) has proposed the creation of a joint work group by the financial sector to handle initial coin offerings (ICOs) and cryptocurrencies.
While strides are being made with regards to blockchain technology in Kenya, the government is keeping cryptocurrencies at arms-length citing risk as the main reason. Therefore, CBK could potentially make life more difficult for individuals and startups doing business in this space.