Why Bank of Uganda Ban on Crypto Is Not Good For FinTechs and Finance

Send Us Your Article For Publishing. Click Here 

Share With Your Friends

Last updated on May 4th, 2023 at 07:52 pm

Save Article to Read Later

No account yet? Register

Read More Commentary On Cryptocurrencies Here

Technology–enabled innovation in financial services (FinTech) is revolutionizing the provision of financial services and disrupting every chain in the provision of financial services.

This disruption is reshaping the role of market players, the structure of the market, business models, payments, and financial products.


Join the Exclusive LegalReports Whatsapp Channel. Click Here


The continued technological advancements in the provision of financial services have created avenues for developing more inclusive financial services that will advance financial inclusion in emerging markets and developing economies like Uganda.

The Cease and Desist Order


While referring to the government position on cryptocurrencies communicated by the Ministry of Finance, Planning, and Economic Development in October 2019, the Bank of Uganda as a regulator of FinTechs warned all licensed FinTechs (especially payment service providers or payment system operators ) to desist from facilitating cryptocurrency transactions.

Bank of Uganda further warned that it would invoke its powers under the National Payment Systems Act 2020 to revoke or suspend a license of a licensed FinTech if it continues to facilitate trade in cryptocurrency and crypto assets at large on grounds of failing to adhere to directives or guidelines issued by Bank of Uganda as a regulator and on grounds of operating a payment system which in the opinion of the central bank endangers the stability of the financial system of Uganda.

Is it all Risky in Crypto?

From the reading of the cease and desist order, the Bank of Uganda’s position seems to be that any dealings in crypto assets endanger the stability of Uganda’s financial system.

Although it is widely acknowledged that crypto assets have their risks, allowing crypto assets in an unregulated environment and being solely driven by market forces may not serve the core policy of objectives that the Bank of Uganda seeks to achieve by banning trade in crypto assets.

Crypto assets operate on open, decentralized networks which offer users a platform to transfer, store, and receive funds with global reach with the need for financial intermediaries.

With these abilities, crypto assets and the technology that underpins crypto assets have presented themselves as alternatives that offer solutions to the inefficiencies in the current conventional monetary and financial system.

READ MORE: Bank of Uganda Successfully Defends Cryptocurrency Ban

Crypto assets platforms are further developing to allow for the complex, interoperable ecosystem of financial services called Decentralized Finance (DeFi) which offers interoperable financial services such as trading, escrow, collateralized lending, and borrowing without the need for an intermediary.

The distributed ledger technology from which crypto assets operate through technological advancement has led to the emergence of decentralized financial infrastructures that reduce or remove the role of intermediaries creating an ecosystem where users directly interact with each other on a peer-to-peer basis and also provide open–source platforms that can promote innovation and interoperability of financial services.

The abilities of the technology under which crypto assets operate and crypto assets themselves present opportunities for developing markets like Uganda to create an efficient and inclusive financial system that has efficient remittance services and speedy but less costly cross-border payments which will be key for Uganda as it develops its economy and markets.

However, these opportunities cannot be harnessed when we outrightly ban any dealing in cryptocurrency. On the contrary, this would attract increased financial crime in crypto assets as criminals mostly look out for high–risk jurisdictions that have no regulation around crypto assets.

Was the Cease and Desist Order Justifiable?

In the National Payment Systems Regulatory Sandbox Framework 2021, the Bank of Uganda acknowledges that it is pertinent to ensure new, more flexible ways of engaging with the financial services industry in order to support technology–enabled innovation in the financial services industry.

The National Payment Systems Policy among other things emphasizes the need to broaden access to payment systems and as a regulator of the space it ought to promote electronic payments and financial innovations.

In 2020, the Second Schedule of the Anti–Money Laundering Act, 2013 as Amended was amended to make a provision for Virtual asset services providers as accountable persons under Uganda’s Anti–Money Laundering legal framework.

The Act defines a Virtual asset provider as a natural or legal person who conducts one or more of the following activities i.e. exchange between virtual assets and fiat currencies, the transfer of virtual assets, the safekeeping or administration of virtual assets or instruments enabling control over virtual assets and the participation in or provision of financial services related to an insurer’s offer or sale of a virtual asset.

In consideration of the scope of the definition of virtual asset providers, any FinTech that is engaged in facilitating trade in crypto assets qualifies as a countable person under the Anti–Money Laundering Act.

In the circumstances the cease and desist order was not justifiable as FinTechs that facilitate trade in crypto assets are accountable persons under the Anti-Money Laundering Act.

Bank of Uganda as a regulator would have combined synergies with the Financial Intelligence Authority to develop a framework for a collaborative regulation towards combating the risks associated with trading in crypto assets.

Further to that, as a regulator that has the power to issue directives or guidelines, it would have been progressive if the central bank had issued a guideline or directive to FinTechs facilitating trade in crypto assets to undergo the regulatory sandbox as Bank of Uganda understands how to progressively regulate trade in crypto assets while ensuring consumer protection and financial integrity.

With this, the central bank would have taken a “test and learn” regulatory approach as it understands the benefits of crypto–assets and their underlying technology while devising means of combating the challenges posed by trading in crypto.

Bank of Uganda’s cease and desist order, therefore, defeats the spirit of having a regulatory sandbox as the entry of new business and introduction of new business models that are technology driven largely depends on the approach of regulators.

The central bank’s decision also disregards the anti–money laundering legal framework whose scope encompasses entities facilitating trade in crypto assets at the expense of denying the market opportunities that crypto assets and their underlying technology offer.


In an emerging and developing market like Uganda, it is important for the Bank of Uganda to appreciate that the advanced use of technology in finance has greatly improved financial inclusion and helped small and medium enterprises (SMEs) to access capital since the conventional financial service providers have on most times found SMEs’ bankability insufficient.

FinTechs are offering customer-centric services and processes while promoting inclusivity to have the previously undeserving segments of society in the financial system.

This potential can only be realized if the Bank of Uganda’s regulatory approach is supportive of disruptive technologies that are giving birth to new business models which have the potential to promote financial inclusion if the risks associated are well understood and combated.

Share With Your Friends

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!