Crypto, or cryptocurrency, is a digital form of money that is powered by blockchain technology and cryptography. Crypto can be used for various purposes, such as payments, investments, trading, and speculation. Virtual assets are digital representations of value that can be transferred, stored, or traded electronically, such as tokens, coins, or digital collectibles.
Crypto and virtual assets are popular among some people who seek alternative ways of accessing and managing their finances, especially in countries with unstable or restrictive monetary systems. However, not all countries are welcoming of these new forms of money and some have imposed strict regulations or bans on them.
Kuwait is one of those countries that has taken a hard stance against crypto and virtual assets. Kuwait has recently banned all transactions involving crypto and virtual assets in the country, citing the concern over money laundering and terrorist financing as the main reason.
What Does the Ban Entail?
The ban on crypto and virtual assets transactions in Kuwait covers a wide range of activities and services that are prohibited by law. These include:
- Buying, selling, exchanging, or transferring crypto or virtual assets within or outside Kuwait .
- Providing or facilitating any services related to crypto or virtual assets, such as custody, brokerage, exchange, trading, or advisory .
- Issuing, offering, distributing, or promoting any crypto or virtual assets or related products or schemes .
- Accepting or using crypto or virtual assets as a means of payment for goods or services .
- Holding or storing crypto or virtual assets in any form or device .
The ban applies to all individuals and entities operating in Kuwait, including banks, financial institutions, investment companies, insurance companies, and other regulated entities . The ban also applies to any foreign entities that offer or provide any crypto or virtual assets services to Kuwaiti residents or nationals .
The ban is enforced by various supervisory authorities in Kuwait, such as the Capital Markets Authority (CMA), the Central Bank of Kuwait (CBK), the Ministry of Commerce and Industry (MOCI), and the Insurance Regulatory Unit (IRU). These authorities have issued circulars to their respective sectors informing them of the ban and instructing them to comply with it .
The penalties for violating the ban are severe and may include fines, imprisonment, suspension, revocation, or cancellation of licenses or permits . The authorities may also confiscate any crypto or virtual assets involved in the violation and take legal action against the offenders .
The only exception to the ban is for crypto or virtual assets that are backed by real assets or commodities and are issued by licensed entities with the approval of the relevant authority. These include e-money tokens that are backed by fiat currency and are issued by CBK-licensed entities; security tokens that are backed by securities and are issued by CMA-licensed entities; and utility tokens that are backed by goods or services and are issued by MOCI-licensed entities .
Why Did Kuwait Ban Crypto and Virtual Assets Transactions?
Kuwait’s ban on crypto and virtual assets transactions is in line with the recommendations of the Financial Action Task Force (FATF), an international body that sets standards for combating money laundering and terrorist financing. The FATF had issued guidance in 2019 on how countries should regulate crypto and virtual assets and their service providers to prevent them from being used for illicit purposes .
Kuwait is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a regional body that follows the FATF’s standards and evaluates its members’ compliance with them. Kuwait had undergone a mutual evaluation by the MENAFATF in 2020 and was found to have a low level of effectiveness in implementing the FATF’s recommendations.
One of the areas where Kuwait was rated as having a low level of effectiveness was in regulating new technologies and emerging risks, such as crypto and virtual assets. The MENAFATF had urged Kuwait to enhance its legal and regulatory framework for addressing these risks and to adopt a risk-based approach to supervision.
Kuwait’s ban on crypto and virtual assets transactions is seen as a response to the MENAFATF’s findings and recommendations. Kuwait’s authorities have stated that they have taken this measure to protect the country’s financial system from money laundering and terrorist financing risks posed by crypto and virtual assets .
What Does This Mean for the Kuwaiti Crypto Industry and Consumers?
Kuwait’s ban on crypto and virtual assets transactions is one of the most comprehensive and strict in the world and could set a global precedent for regulation. Kuwait’s authorities have effectively shut down the entire crypto and virtual assets industry and market in the country, leaving no room for innovation, competition, or financial inclusion.
The ban affects not only the existing crypto and virtual assets businesses and users in Kuwait, but also the potential ones who may have been interested in exploring or adopting these new forms of money. The ban also isolates Kuwait from the global crypto and virtual assets community and deprives it of the opportunities and benefits that these technologies could offer.
The ban could have negative impacts on Kuwait’s economy, society, and reputation, as it could discourage foreign investment, innovation, and talent from entering or staying in the country. The ban could also undermine Kuwait’s compliance with other international standards and obligations, such as human rights, consumer protection, and data privacy.