Recent Developments
The Grand National Assembly of Türkiye (“TBMM“) has put on its agenda the long-discussed draft bill on crypto assets (“New Draft Bill“), which was also highlighted by the Minister of Treasury and Finance, Mehmet Şimşek, to introduce regulations on crypto assets to the Capital Markets Law No. 6362 (the “Law“). Previously, a draft bill on crypto assets (“Previous Draft Bill“) was submitted to TBMM at the end of 2021, but it was not enacted. Please refer to our alert on the previous draft bill here.
What Does the New Draft Bill Offer?
With the New Draft Bill, the concepts of crypto asset, crypto asset trading platform (“Platform“), crypto asset custody service and crypto asset service providers (“Service Providers“) will be defined. As in the Previous Draft Bill, in the New Draft Bill, “crypto asset” will mean an intangible asset representing a value or right that can be created and stored virtually through distributed ledger technology or any other similar technology and that can be distributed over digital networks.
In addition, the procedures and principles applicable to Platforms and institutions providing custody services, the rules regarding their supervision and the sanctions to be imposed in case of noncompliance with the legal regime are among the regulations introduced by the New Draft Bill.
While the CMB will have the authority to regulate crypto assets that provide rights specific to capital market instruments, the Central Bank of the Republic of Turkey will be able to regulate crypto assets accepted as electronic money within the scope of payment services and electronic money legislation, and the Ministry of Trade will be able to regulate crypto assets that aim to access or represent a product or service offered. In addition, crypto assets will be subject to the provisions of the applicable legislation in case they offer the same elements through written, oral and other methods, according to the characteristics they carry and the rights they promise.
Capital Markets Instruments as Crypto Assets
Like the Previous Draft Bill, the New Draft Bill provides that the Capital Markets Board (“CMB“) may authorize the issuance of capital markets instruments in the form of crypto assets.
Principles Governing Platforms, Custody Services and Service Providers
- One of the most important provisions introduced by the New Draft Bill, which was not included in the Previous Draft Bill, is the CMB’s authority to allow crowdfunding the sale and distribution of crypto assets that meet certain conditions. These conditions are:
- The crypto asset to be sold and distributed must develop distributed ledger technology or a similar technological infrastructure.
- The value of the crypto asset in question must be inseparable from the technology it develops.
- The relevant crypto asset must be approved by the Scientific and Technological Research Council of Türkiye (“TÜBİTAK“).
- As in the Previous Draft Bill, under the New Draft Bill, the Platforms conducting crypto asset trading will be subject to a license to be issued by the CMB for their establishment and operation, and the CMB will have the authority to make additional determinations regarding the establishment, operations, shareholders, capital obligations, information systems and technological infrastructure, share transfers and other similar matters of the Platforms.
- The New Draft Bill also sets out the requirements for the shareholders, directors, representatives of the Service Providers. Likewise, changes in the capital structure of the Service Providers may require the authorization of the CMB in certain circumstances.
- The New Draft Bill retains the authority granted to the CMB by the Previous Draft Bill to determine the crypto assets to be traded on the Platforms and to make regulations regarding the termination and disposal of trading, but also imposes an obligation on the Platforms to establish written procedures in these matters.
- As in the Previous Draft Bill, the Platforms will pay to the CMB a fee at a rate to be determined by the CMB for each calendar year, which cannot exceed 10% of their total income, excluding interest income, starting from the year they received their license.
- Records regarding the wallets where customers’ crypto asset transfers are made and bank accounts where cash transfers are made will be kept in a traceable manner by authorized institutions. However, the CMB may determine the maximum amount of crypto assets that can be transferred through authorized institutions and the limits on their current value in line with the approval of the Ministry of Treasury and Finance.
- The New Draft Bill stipulates that the crypto assets belonging to the Platforms’ clients will be stored in the clients’ own wallets but retains the Previous Draft Bill’s rule that crypto assets and clients’ cash that clients prefer not to store in their own wallets will be stored by banks authorized by the CMB and deemed appropriate by the Banking Regulatory and Supervisory Authority or other institutions authorized by the CMB.
- As in the Previous Draft Bill, clients’ crypto assets and cash will be separated from the relevant Service Provider’s assets. Assets of the clients will not be subject to any attachment, pledge or interim measure in connection with the debts of the Services Providers or be incorporated in the bankruptcy estate of the Service Providers.
- Crypto asset trading contracts between the Platforms and their clients must be concluded in writing or by way of distant contract. The applicable principles and procedures will be determined by the CMB.
- Provisions on market abuse will be applied by analogy for the transactions carried out on the Platforms.
- The New Draft Bill retains the broad liability regime introduced by the Previous Draft Bill, which aims to protect investors. Accordingly, the Service Providers will be primarily liable for damages caused by their unlawful activities, default on delivery obligations, due to cyberattacks, technical failures, operational errors or misconduct by the Service Providers’ personnel. Where the relevant Service Provider fails to indemnify such damages, the relevant Service Provider’s personnel will be held liable to the extent that such damages are attributable to them. Furthermore, natural persons deemed liable for such damages can be declared bankrupt upon the request of the CMB.
- Another critical regulation specific to the New Draft Bill is the determination of the pledge regime for crypto assets. Accordingly, the pledge of crypto assets will be subject to the Law No. 6750 on Movable Pledges in Commercial Transactions.
- Special regulations will be established by the CMB regarding investment advisory and portfolio management for crypto assets.
Measures and Sanctions for Unlawful Transactions and Unauthorized Activities
- As in the Previous Draft Bill, the CMB will supervise the compliance of the Service Providers with the Law, and it may request TÜBİTAK to participate in the supervision if deemed necessary.
- The New Draft Bill refers, respectively, to the measures to be applied for unlawful activities or transactions of capital market institutions, measures to be applied for unauthorized capital market activities and measures to be applied for unlawful announcements, advertisements and notices, with regard to the unlawful activities and transactions of the Service Providers, unauthorized crypto asset service providing activities and announcements, advertisements and notices related to these activities.
- Another regulation, which was included in the Previous Draft Bill and is also included in the New Draft Bill, is regarding unauthorized crypto asset service providing activities. Natural persons and the personnel of legal persons who conduct unauthorized service providing activities will be subject to imprisonment for three to five years and a judicial fine of up to TRY one million.
- The CMB will be authorized to request the strengthening of the financial conditions of the Service Providers that it determines are unable to fulfil their payment and crypto asset delivery obligations or that their financial strength has weakened, or to temporarily suspend their activities, or to revoke their operating licences and to limit and suspend the signature authorities of managers and employees.
- As in the Previous Draft Bill, the Information and Communication Technologies Authority will be entitled to block access to the website upon the application of the CMB in relation to announcements, advertisements and notices in violation of the principles determined by the CMB. In addition, the blocking of access measure will also be applicable to unlawful management consultancy and/or portfolio management of crypto assets.
- The activities and marketing carried out by the Platforms based abroad for and with Turkish residents will be deemed as unauthorized crypto asset service. Accordingly, the Platforms based abroad will be required to obtain license from the CMB in accordance with the provisions of this Law to carry out activities for and with Turkish residents.
- That being said, provisions of the Previous Draft Bill stipulating that Turkish residents may only trade crypto assets with institutions authorized by the CMB, that Turkish residents may only conduct their trading transactions with non-resident institutions and crypto asset transfers related to these transaction through institutions authorized in Türkiye; requiring that the crypto assets or cash obtained as a result of the transactions must be transferred to the wallets or bank accounts of the relevant authorized institution within the periods specified in the legislation, in case of crypto assets and cash outflows out of the wallets or bank accounts of institutions authorized in Türkiye within the scope of trading transactions to be carried out at institutions resident abroad; and imposing administrative fines for clients who violate the above-mentioned rules, have been abandoned.
Transition Period
The New Draft Bill comes with good news for those already operating as Platforms as of the date of its entry into force. Accordingly, these Platforms will continue their activities without a license from the CMB until the secondary regulation to be issued by the CMB enters into force. However, a new Platform cannot be established until the secondary regulation enters into force. New Platforms to be established will be able to start their operations after meeting the conditions set out in the secondary regulation and obtaining a license from the CMB.
Those who continue to operate without applying to the CMB for an operating license within the period specified in the secondary regulation will be deemed to be engaged in unauthorized crypto asset service.
Finally, it is stipulated that the Platforms resident abroad will be required to terminate their activities for and with Turkish residents within one month following the date of entry into force of the New Draft Bill, or otherwise their activities will be considered as unauthorized crypto asset service providing activities.
Conclusion
The New Draft Bill regulates crypto assets within the Law and with capital markets instruments. However, it does not qualify crypto assets as capital markets instruments and provides a pro-investor liability regime for crypto assets similar to that of capital market instruments.
A “closed loop” approach is explicitly adopted under the New Draft Bill to track the crypto trading.
Finally, the New Draft Bill provides the CMB with the authority to issue secondary regulations in many areas where it does not regulate. If the New Draft Bill is enacted into law, the CMB’s secondary regulations will shed light on how the crypto asset market in Türkiye will be shaped.
