In an era where digital innovation transforms financial landscapes at breakneck speed, Türkiye has taken a bold step forward with the introduction of Law No. 7518, amending the Capital Markets Law regarding crypto assets. This groundbreaking legislation, effective as of July 2, 2024, not only redefines the regulatory framework for crypto assets but also positions Türkiye as a pivotal player in the global cryptocurrency market. By clarifying legal ambiguities and establishing robust governance structures, this law aims to foster a secure, transparent, and thriving environment for both investors and service providers in the burgeoning field of digital assets.

Law No. 7518 Amending the Capital Markets Law Regarding Crypto Assets (“Law Amendment”) was accepted by the General Assembly of the Grand National Assembly of Türkiye on June 26, 2024, and published in the Official Gazette on July 2, 2024, thus entering into force.

The Law Amendment introduces new definitions to the Capital Markets Law No. 6362, dated December 6, 2012 (“CML” or “Law”), addressing the scope of buying, selling, and transferring crypto assets, the custody of crypto assets, and the activities of Crypto Asset Service Providers (“CASP”) and crypto asset platforms in Türkiye.

New Concepts and Definitions Related to Crypto Assets

• Wallet: Software, hardware systems, or applications that enable the transfer of crypto assets and the storage of these assets or the private and public keys related to these assets online or offline.
• Crypto asset: Intangible assets that can be created and stored electronically using distributed ledger technology or similar technology, distributed over digital networks, and representing value or rights.
• Crypto asset service provider: Institutions that provide crypto asset custody services, platforms, and other institutions designated to provide services related to crypto assets, including their initial sale or distribution, according to regulations based on this Law.
• Crypto asset custody service: The management or other custody services determined by the Board for the custody of crypto assets of platform customers or the private keys providing transfer rights from the wallet related to these assets.
• Platform: Institutions where one or more of the following activities are performed: buying, selling, initial sale or distribution, exchange, transfer, and required custody of crypto assets, and other transactions that may be determined.

It is important to note that the definition of crypto assets is consistent with the “Regulation on the Non-Use of Crypto Assets in Payments” dated April 16, 2021, and also shares similarities with the European Union's "Markets in Crypto-Assets" (“MiCA”) regulation.

Regulations Related to Crypto Asset Service Providers

According to the Law Amendment, CASPs must obtain permission from the Capital Markets Board (“CMB” or “Board”) to be established and start operating. Additionally, CASPs operating or planning to operate in Türkiye are subject to the regulation and supervision authority of the CMB. In this context, the Law Amendment stipulates that CASPs “will exclusively perform activities determined by the Board”. Below, the requirements for CASP shareholders, board members, and the sanctions to be applied in case of embezzlement or unauthorized activities are discussed.

General Obligations of CASPs

• Making necessary arrangements for the secure management of their systems.
• Establishing internal control units and systems.
• Ensuring compliance with the criteria for information systems and technological infrastructure determined by TÜBİTAK for obtaining establishment and operation permits.

Requirements for Shareholders:

• Not Being Bankrupt: Not being declared bankrupt according to Law No. 2004 or other legislation provisions.

• Liquidation Status: Not owning or controlling more than ten percent of the shares in companies whose activity permit has been canceled except for voluntary liquidation.

• Criminal Record:

  1. Not being convicted of crimes other than negligent offenses, including embezzlement, extortion, bribery, theft, fraud, forgery, breach of trust, fraud in public procurement, and abuse of trust.
  2. Not being convicted of smuggling crimes except for smuggling for use and consumption, interfering with official tenders and sales, interfering with the performance of an obligation, preventing, disrupting, destroying, or altering the information system, and laundering property values arising from crime.
  3. Not being convicted of crimes against the state.
  4. Not being sentenced to imprisonment for five years or more for an intentional crime.

• Transaction Ban: Not being subject to a temporary or permanent transaction ban on stock exchanges regarding capital market instruments according to Article 101, paragraph 1(a) of the Law.

• Financial Strength: Having the necessary financial strength.

• Honesty and Reputation: Having the honesty and reputation required for the job.

• Transparency: Having a transparent and open partnership structure.

• Characteristics Required for Board Members and Authorized Representatives: Must possess all the requirements for shareholders except for the financial strenght requirement.

• Individual Receiving More than Half of the Distributable Profit: Must meet the conditions required for shareholders.

Corporate Founding Partners:

• Shareholders with privileged shares representing ten percent or more of the capital or voting rights directly or indirectly and having the right to be represented on the board of directors must meet the conditions required for shareholders.
• This also applies to changes in the partnership structure after the establishment.

Privileged Shareholders:

• Real and legal persons who own privileged shares representing ten percent or more of the capital or voting rights of the crypto asset service provider and have the right to be represented on the board of directors must meet the conditions required for shareholders.
• Those who lose these conditions (except for the financial strength requirement) must transfer their shares within six months.

Capital Market Crimes Related to Crypto Assets

The Law Amendment has regulated the crimes of “unauthorized crypto asset service provider activities” and “embezzlement at crypto asset service providers” under the title “Capital Market Crimes.” These crimes and the prescribed sanctions are as follows:

• Unauthorized crypto asset service provider activities: Real and legal persons determined to operate as a CASP without authorization will be sentenced to imprisonment for three to five years and a judicial fine of five thousand to ten thousand days.
• Embezzlement of crypto asset service providers: Board members and other personnel of crypto asset service providers who embezzle money, documents, bonds, other assets, or crypto assets entrusted to them due to their duties or under their protection and custody obligation will be sentenced to imprisonment for eight to fourteen years and a judicial fine of up to five thousand days. They will also be required to compensate the service provider for the damage. Additionally, the cases that require a heavier penalty within the scope of this offense and the reductions in the penalty to be applied within the scope of effective remorse are also discussed.

The qualifications determined for the shareholders and board members of crypto asset service providers aim to ensure the security, transparency, and integrity of the financial system. These qualifications aim to create a reliable and honest management structure in the sector, ensure financially strong and reputable individuals take office, and prevent possible abuses or criminal situations. The regulation of crimes and sanctions aims to protect investors, ensure the stable functioning of the market, and prevent financial crimes. These regulations aim to enhance market and public security.

Foreign Centralized Crypto-Asset Exchanges

Foreign centralized platforms operating in activities directed towards residents in Türkiye must cease their activities by October 2, 2024. After this date, criminal procedures discussed above will be applied to those continuing their activities. In this context, foreign-based platforms must establish a company in Türkiye and obtain an operating permit from the Board. The conditions under which foreign crypto asset exchanges will be subject to licensing in Türkiye include opening a workplace in Türkiye, creating a Turkish website, and promoting and marketing crypto asset services directly or through local persons or institutions. Activities and promotions directed at residents in Türkiye by these platforms will be considered unauthorized crypto asset service provider activities. The Access Providers Union can block internet access to online advertisements, promotions, and announcements made in violation of the principles determined by the Board, upon the Board’s request.

The Authority of the Capital Markets Board and Secondary Regulations

The Law Amendment grants extensive powers to the Capital Markets Board to regulate and supervise crypto asset service providers. Beyond the establishment and operation permits briefly mentioned above, the Board’s authority is addressed in the Law Amendment, stating that issues not explicitly mentioned in the law will be determined through secondary regulations.

Establishment and Operation Permits

CASPs must obtain a permit from the CMB to be established and start operations. In this permit process, the organizational structures, capital adequacy, information systems, and technological infrastructure of the organizations will be evaluated by the CMB. The CMB will determine the activity limits of CASPs and establish principles and rules to be followed.

Custody and Transfer of Crypto Assets

The Board will make comprehensive regulations for the secure custody, transfer, and protection of customer assets. These regulations will include the separate management of crypto assets, secure management, and the maintenance of necessary records in transfer processes.

Platforms and Transactions

The Board will determine the procedures and principles related to the buying, selling, exchange, and transfer transactions of crypto assets. Regulations will be made regarding the listing procedures of crypto assets to be traded on platforms and their delisting. Additionally, rules will be established by the Board for measures to be taken against market-disturbing transactions and price formation. The determination of crypto assets to be initially sold or distributed on platforms is also within the scope of these regulations.

Customer Relations and Contracts

The procedures and principles related to contracts between CASPs and their customers will be regulated by the CMB. These regulations aim to protect customer rights, identity verification processes, and ensure the security of customer assets. Issues such as the arrangement, amendment, termination/termination, minimum provisions, fees, and expenses of CASP-customer contracts will be addressed within this scope.

Information Systems and Audit

The compliance of CASPs' information systems and technological infrastructures with the criteria determined by TÜBİTAK will be audited by the CMB. Additionally, the procedures and principles for information systems and financial audits will be determined, and audits will be conducted by independent audit firms. The audit processes will cover information systems and financial independent audits.

Sanctions and Measures

The CMB will have the authority to block internet access to platforms operating without permission. Additionally, temporary or permanent suspension measures can be applied against CASPs with weakened financial structures or failing to fulfill their obligations.

The Duties of TÜBİTAK

Under the Law Amendment, various authorities have been granted to the Scientific and Technological Research Council of Türkiye (“TÜBİTAK”). TÜBİTAK will be responsible for auditing the compliance of CASPs’ information systems and technological infrastructures, determining technical criteria for license applications, preparing technical reports, and providing opinions. TÜBİTAK will also be responsible for providing opinions related to the information systems in the audit of licensed CASPs and determining the crypto assets to be listed on platforms. Additionally, platforms will transfer 1% of their annual revenue excluding interest to the Board and 1% to TÜBİTAK. This financial resource will be used to promote blockchain technology in Türkiye and finance projects in this field. These regulations aim to strengthen TÜBİTAK’s role in ensuring technological infrastructure and security in the crypto asset market.

Transition Provisions for Crypto Asset Service Providers

The article regulating the adaptation process covers regulations for those currently operating, those starting new activities, and foreign-based service providers. Additionally, there are regulations regarding ATMs and electronic transaction devices and the enforcement of secondary regulations.

Currently Operating Entities:

1. Those Wishing to Continue Their Activities: They must apply to the Board within one month from the effective date of the Law Amendment and submit a declaration that they will fulfill the conditions stipulated in the secondary regulations to be issued to obtain an operating permit. These applications will be announced on the Board’s website.
2. Those Deciding to Liquidate: They must apply to the Board within one month from the effective date of the Law Amendment and submit a declaration that they will make a liquidation decision without harming customer rights and interests within three months from the effective date and will not accept new customers during this liquidation process. Liquidating organizations are obliged to announce the situation on their websites and notify their customers.

Those Starting New Activities:

Those wishing to start activities after the Law’s effective date must apply to the Board before starting their activities and declare that they will fulfill the necessary conditions.

Foreign-Centralized Service Providers:

Foreign-centralized crypto asset service providers must cease their activities directed at residents in Türkiye within three months from the effective date of the Law Amendment. Otherwise, their activities will be considered unauthorized crypto asset service provider activities.

ATMs and Electronic Transaction Devices:

The activities of ATMs and similar electronic transaction devices enabling the conversion of crypto assets to cash or vice versa and their transfer must be terminated within three months from the effective date of the Law Amendment. ATMs that do not terminate their activities will be closed upon notification by the highest local administrative authority, and continuing activities will be considered unauthorized crypto asset service provider activities.

Secondary Regulations:

Secondary regulations mentioned under the Law Amendment will be enforced within six months from the effective date of the Law.

Revenue Recording:

The implementation of revenue recording to the Board and TÜBİTAK budgets from the 2024 revenues will start in 2025.

Other Important Developments

Announcement of the Capital Markets Board – 02.07.2024

The Capital Markets Board published an announcement titled “Announcement Regarding Crypto Asset Service Providers” on the effective date of the Law Amendment, July 2, 2024. This announcement addresses the deadlines and final dates specified in the law, the necessary information forms and documents for service providers wishing to continue their activities, and those planning to start new activities after the effective date of the law. Under the heading APPENDIX/1-Application Documents, the list of documents to be submitted by crypto asset service providers to the CMB is listed, and under the heading APPENDIX/2-Information Form, the information to be provided by service providers is specified. Additionally, it was announced that the lists of “Entities in Operation” and “Entities Declaring Liquidation” will be published on the Board’s website under the "Crypto Asset Service Providers" section. It was also stated that applications to the Board with incomplete or insufficient information would not be included in the “Entities in Operation” list. Updated lists can be accessed on the Board’s website.

Türkiye’s Removal from FATF Grey List – 28.06.2024

The Financial Action Task Force (“FATF”) is an organization that sets international standards to prevent money laundering and terrorism financing. FATF provides a compliance framework consisting of 40 recommendations to secure the financial systems of countries.

Türkiye was placed on the FATF's grey list in October 2021. FATF stated that Türkiye did not fully comply with issues related to money laundering and terrorism financing. However, before the FATF meeting, Türkiye had made significant progress by meeting 39 of the 40 criteria for removal from the grey list. The only remaining criterion was related to “New Technologies” regulating virtual assets.

The Law Amendment regarding crypto assets was accepted by the General Assembly of Grand National Assembly of Türkiye, one day before the FATF announced Türkiye’s decision to be removed from the grey list on June 27, 2024. On June 28, 2024, it was announced that Türkiye was removed from the grey list, with virtual assets and virtual asset service providers being evaluated as "partially compliant" under Recommendation 15, which was the only missing recommendation. It is expected that this recommendation will be evaluated as compliant after the secondary regulations.

Conclusion

The Law Amendment is a significant step for the regulation and supervision of the crypto asset market in Türkiye. This regulation clarifies the definition of crypto assets, establishes rules for the activities of service providers, and introduces measures to protect investors. Particularly, the regulation of CASPs under the supervision of the Capital Markets Board, the requirement for licensing, and the determination of sanctions aim to create a safer and more transparent environment in the market. The Law Amendment is a significant development in the Turkish crypto market, granting the Board the authority to make secondary regulations in many areas not covered by the regulation. Additionally, the announcement of the Board indicating the scope of the Law and the swift implementation of secondary regulations can be seen as a sign of this commitment. Therefore, the final shape of the crypto asset market in Türkiye will be determined by the secondary regulations to be made by the Board.

@Dilara Ozakalin @Dr. Omer KESIKLI