Protecting Digital Assets in a Transforming Regulatory Landscape

1. Executive Summary

Digital assets—cryptocurrencies, stable coins, tokenized assets and blockchain-based instruments—are increasingly integrated into financial systems in Kenya and globally. Kenya’s 2025 Virtual Assets Service Providers (VASP) Act and new draft Insurance Regulatory Authority (IRA) guidelines have introduced formal oversight, licensing and a new insurance class (Class 142) for virtual asset insurance. This marks a major shift that strengthens consumer protection, encourages institutional adoption and enables insurers to provide coverage for crypto-related risks.

As individuals, businesses, exchanges, custodians and institutional investors adopt digital assets, exposure to hacking, fraud, private-key loss, smart-contract vulnerabilities, compliance risks and governance failures grows significantly. This report condenses the key regulatory developments, risk exposures, insurance solutions and market trends shaping digital asset protection today.

2. Introduction

Digital assets have moved from niche technology to mainstream financial tools. In Kenya alone, stablecoin transactions reached KES 426.4 billion in the year ending June 2024, ranking the country fourth globally in stablecoin usage. Stablecoins are widely used for remittances, cross-border trade and business payments due to lower transaction costs (0.5–1% vs 4–7% in banks).

Despite rapid adoption, the digital-asset sector faces significant risk exposure and historically lacked regulatory clarity. Kenya’s new VASP Act (2025) and IRA’s virtual-asset insurance classification now address this gap, offering a structured framework for licensing, consumer protection and risk transfer through insurance. Meanwhile, global insurers are responding to increasing institutional demand for protection of digital assets in custody, trading, treasury operations and decentralized finance (DeFi).

3. Key Insights and Analysis

3.1 Regulatory Developments in Kenya

a) VASP Act, 2025

• Establishes licensing requirements for exchanges, custodians and crypto service providers.
• CBK and CMA will regulate operations once detailed guidelines are issued.
• No firm is licensed yet—licensing begins after rules are finalized.
• Supports safer markets and aligns Kenya with global digital-asset standards.

b) IRA Virtual Asset Insurance (Class 142)

• Introduces insurance for hacking, fraud, insider theft and wallet compromise.
• Places crypto insurance on equal footing with traditional insurance classes.
• Encourages emerging products and protects Kenyan consumers and investors.

3.2 Major Risks in Digital Assets

a) Cyber & Custodial Risks

• Hacking, malware, unauthorized access
• Loss or theft of private keys
• Custodian failures (hot, warm or cold storage)

b) Crime & Fraud Risks

• Insider theft, rogue employees
• Social-engineering scams
• Fraudulent withdrawals and phishing attacks

c) Smart-Contract & Technology Risks

• Code errors, bugs, protocol failures
• Infrastructure downtime
• DeFi vulnerabilities

d) Governance & Regulatory Risks

• Poor disclosure to investors
• Potential litigation (class actions, regulatory sanctions)
• Compliance failures in KYC/AML processes

e) Corporate Treasury Risks

Companies like Strategy (formerly MicroStrategy) exemplify firms heavily investing in Bitcoin. Risks include:

• Volatility impacting balance sheets
• Investor concerns about investment decisions
• Staking risk when using third-party platforms
• Custody choices between self-custody and third-party custodians

3.3 Insurance Solutions for Digital Assets

a) Digital Asset Insurance (Relm Insurance)

Focuses on blockchain-specific exposures such as:

• Wallet vulnerabilities and custody mistakes
• Smart-contract failures
• Regulatory actions
• Theft, destruction or loss of digital assets

Exclusions typically include market volatility, policyholder fraud and negligent key management.

b) Munich Re Digital Asset Crime Cover

Provides institutional-grade protection, covering:

• External hacking
• Internal employee fraud
• Physical theft or destruction (specie)
• Coverage across hot and cold storage

Eligibility targets mature firms with strong KYC/AML controls and security certification.

Coverage capacity: Up to EUR/USD 25 million per risk

c) Other Key Insurance Policies

• Cyber Liability: Covers breaches, ransomware, data theft.
• Technology E&O: Covers software bugs and smart-contract issues.
• D&O Insurance: Protects leadership from litigation tied to digital-asset decisions.
• Custody Insurance: Covers private-key loss and wallet compromise.
• Crime/Fidelity Insurance: Protects against theft, fraud and asset disappearance.

3.4 Additional Risk Solutions (Price Forbes)

Price Forbes provides risk programs for:

• Exchanges, custodians
• Miners & stakers
• Key-management technology firms
• Asset managers & NFT markets

Includes coverage such as: Specie, D&O, Cyber, E&O, Digital Asset Crime and Physical Infrastructure protection.

3.5 Digital Assets in Life Insurance (PPLI)

Private Placement Life Insurance (PPLI) offers high-net-worth investors:

• Diversification
• Tax efficiency and estate planning
• Ability to include digital assets in insurance-linked investment accounts
• Use of regulated structures like SPVs or funds
• Direct digital-asset holdings under strict conditions

Regulators (e.g., EU under Solvency II) require prudent exposure to unregulated crypto assets, meaning digital assets must remain at controlled levels within life-insurance portfolios.

4. Key Takeaways

1. Kenya’s regulatory shift—through the VASP Act and IRA’s digital-asset insurance class—marks a significant step toward safer, more mature crypto markets.
2. Institutional demand for digital-asset insurance is rising as companies adopt crypto for treasury, payments and investment purposes.
3. Cyber and custodial risks remain the highest exposures, requiring specialized coverage not found in traditional insurance.
4. Global Insurers like Munich Re, Relm, Lloyd’s and Price Forbes now offer comprehensive frameworks for theft, hacking, fraud, smart-contract failure and custodial risks.
5. Digital assets are increasingly used in corporate treasury and investment strategies, but require strong governance and insurance support to mitigate volatility and compliance risks.
6. Life-insurance integration through PPLI is emerging as a sophisticated solution for wealthy individuals seeking diversification and regulatory clarity.
7. Kenya’s high stablecoin adoption indicates strong ongoing demand, driven by low fees and efficiency in cross-border payments and business transfers.

5. References 

Munich Re – Digital Asset Protection (PDF)

Relm Insurance – Digital Asset Insurance Overview

Techweez – Kenya Virtual Asset Insurance & Regulation Articles

Lockton – Digital Asset Treasury & Insurance Strategy

Price Forbes – Digital Asset & Crypto Risk Solutions