The global rise of cryptocurrencies and Virtual Asset Service Providers (VASPs) has triggered a wave of legislative reform in many jurisdictions. While these innovations bring exciting opportunities for economic inclusion and digital transformation, they also present real risks in the absence of regulatory safeguards. In Lesotho, the legal treatment of virtual assets remains underdeveloped, leaving the country vulnerable to financial crime and consumer harm.
Recent assessments by the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) have identified significant gaps in Lesotho’s regulatory posture. The 2022 Mutual Evaluation Report confirmed that authorities were unable to determine whether any virtual asset transactions had occurred within the Kingdom, or whether any VASPs were operating locally. This absence of data reflects a broader lack of policy, oversight, and institutional awareness.
The Legal Status of Cryptocurrency in Lesotho
At present, Lesotho does not formally recognise or regulate cryptocurrencies. The Central Bank of Lesotho (CBL) has issued cautionary statements, reiterating that digital assets fall outside its regulatory mandate. In its most recent guidance, the CBL confirmed that it offers no protection to individuals who suffer losses as a result of investing in cryptocurrency. Furthermore, cryptocurrencies are not classified as legal tender or recognised foreign currency in Lesotho.
Promoting crypto-related investments may even violate existing laws. Under the Capital Markets Regulations of 2014, anyone providing financial advice must be licensed by the CBL. Those marketing or selling cryptocurrency products may therefore be operating in contravention of local law, particularly if they are doing so without appropriate licensing.
Lesotho’s AML/CFT Gaps Regarding Virtual Assets
The Money Laundering and Proceeds of Crime Act, 2008, along with its 2019 Regulations, form the cornerstone of Lesotho’s anti-money laundering and counter-terrorist financing framework. However, these instruments do not explicitly reference virtual assets or service providers. While the Act’s broad definition of “property” may theoretically encompass digital assets, the absence of clear legal interpretation has left virtual asset compliance in a grey zone.
ESAAMLG’s findings revealed that Lesotho has no targeted risk assessment for virtual asset misuse and only a limited understanding of the money laundering and terrorist financing threats associated with digital assets. This presents a significant policy gap in light of the Financial Action Task Force’s (FATF) Recommendation 15, which requires countries to supervise and license VASPs.
FATF Standards and Lesotho’s Compliance Shortfalls
The FATF mandates that VASPs be subject to licensing, AML/CFT obligations, and transactional monitoring requirements, including the “travel rule” for fund transfers. Lesotho currently falls short of these requirements, with the 2022 evaluation showing widespread non-compliance across core FATF recommendations.
This regulatory lag places Lesotho at risk of being considered a non-cooperative jurisdiction and may limit its participation in global financial systems. Other ESAAMLG countries, including Seychelles and Mauritius, have already introduced laws that regulate virtual asset markets in line with FATF principles.
Cryptocurrency Risk Factors in the Basotho Context
Money Laundering and Terrorist Financing
Cryptocurrencies offer anonymity and decentralisation, features that are attractive to illicit actors. In Lesotho, where financial institutions already face structural challenges, unregulated crypto use increases the risk of illicit flows entering or exiting the economy without detection.
Consumer Protection
The lack of regulation leaves Basotho consumers exposed. There are no minimum standards for VASP operations, and victims of fraud or insolvency have no formal recourse. As crypto-related scams grow more prevalent across Southern Africa, the absence of a clear legal framework in Lesotho could have devastating consequences for low-income and vulnerable users.
Institutional and Technical Limitations
Developing an effective crypto regulatory regime requires investment in regulatory capacity, technology, and financial literacy. Lesotho’s resource constraints highlighted in the 2022 Mutual Evaluation Report pose challenges to implementing and supervising a crypto law, but not insurmountably so.
What Should a Cryptocurrency Law in Lesotho Include?
A fit-for-purpose cryptocurrency law in Lesotho should provide for:
- Licensing of VASPs, including minimum capital, governance standards, and fit-and-proper assessments;
- AML/CFT controls, including KYC requirements, transaction monitoring, and reporting of suspicious activity;
- Consumer safeguards, such as disclosures on risk, custody rules, and complaints mechanisms;
- Compliance with the FATF travel rule, ensuring data on virtual asset transfers is available to authorities;
- Enforcement mechanisms, including sanctions and revocation powers for non-compliant operators.
Moving Towards Crypto Regulation in Lesotho
International best practice offers helpful templates. The Commonwealth Secretariat’s model law on virtual assets is already in use by numerous countries and could provide Lesotho with a starting point. Additionally, ESAAMLG’s regional findings underscore the value of harmonising rules across borders.
What is needed now is a firm commitment from policy-makers, coordinated support from financial institutions, and engagement with stakeholders including tech innovators, consumer advocates, and law enforcement.
Conclusion
Lesotho currently operates in a regulatory vacuum when it comes to cryptocurrency. This not only jeopardises compliance with international AML/CFT obligations, but it also puts consumers and financial stability at risk. The time has come for Lesotho to develop a comprehensive, risk-based legal framework for cryptocurrency and virtual asset service providers.
Establishing such a framework will require inter-agency coordination, capacity-building, and policy reform but it is an essential step to align Lesotho with global standards, encourage responsible innovation, and protect the financial system from abuse. In the absence of regulation, Lesotho risks falling behind the region and exposing its citizens to unnecessary harm in an increasingly digital financial environment.