As you may know, Türkiye has been long in the process of preparing a legal framework to regulate crypto service providers. As a conclusion of these efforts, on June 26, 2024, the Turkish Parliament adopted the draft law (“Crypto Law”), which provides for significant amendments to the Capital Markets Law and comprehensively regulates activities related to cryptoassets, including the introduction of a licensing requirement for cryptoasset service providers.
This memo has been prepared to inform you with regards to key issues that are regulated in the Crypto Law:
New Definitions
The concepts of (i) crypto asset; (ii) crypto asset service provider; (iii) crypto asset custodian service; (iv) Platform have been defined under Crypto Law as the following:
Competent Authority
Pursuant to Crypto Law, the Capital Markets Board (“CMB”) is authorized to establish regulatory actions, take special and general decisions, and impose measures and sanctions regarding crypto assets that provide rights specific to capital market instruments as the competent supervisory authority. CMB is authorized to regulate the procedures and principles regarding CASPs, trading, initial sale, distribution, transfer and exchange of crypto assets through Platforms and storage of crypto assets.
Regulation of Crypto-Based Capital Market Instruments
CMB will be authorized to establish principles for issuing capital market instruments as crypto assets.
Moreover, the CMB is authorized to determine the principles for the sale or distribution of crypto-assets providing rights specific to capital market instruments (such as crypto-based derivative products).
We would like to note that the Crypto Law specifically indicates that the duties and authorities of institutions and organizations arising from other legislation regarding crypto assets are reserved. Thereby, we believe if a crypto-asset also has the features of e-money or a utility token it shall be subject to the relevant regulation (e.g. E-money regulations, consumer protection regulations) as well as the Capital Markets Law (“CML”).
Licensing Requirement
As per Crypto Law, CASPs will be obliged to obtain a license from CMB to be incorporated and to operate under Turkish Law. The procedure and specific requirements to be fulfilled for the licensing process is not regulated under the Crypto Law, they will later be determined in secondary regulations (however, we expect those will be similar to the process and requirements applicable to the licensing procedure of other capital markets institutions). In addition, compliance with criteria established by TUBITAK in secondary regulations regarding organizations' information systems and technological infrastructures will be required before licensing.
Listing of Crypto Assets on Platforms
The Crypto Law requires Platforms to create a written listing procedure for determining the crypto assets to be traded or to be sold or distributed for the first time, and for the termination of their trading. It is stated that the procedures and principles regarding the preparation of the said procedure will be regulated by the CMB.
Crypto Asset Custody Services
As per the Crypto Law, it is recognized as a general principle that the crypto assets belonging to the customers of the platforms shall be kept in the customers' own wallets. However, users are allowed to procure custody wallet services from 3rd parties. Accordingly, the Crypto Law allow custody services to be provided only by banks which are authorized through the CMB’ regulations and are approved by Banking Regulatory and Supervisory Agency (“BDDK”) or other institutions authorized by the CMB. Cash deposits provided by customers must also required to be kept in banks.
Cash and crypto assets belonging to customers must be separated from the assets of the CASPs and records shall be kept in compliance with this obligation.
The CMB is authorized to set separate storage principles for each crypto asset or for the technological characteristics that these assets are founded or for the quantity or the quality of the crypto assets.
Mandatory Content of Customer/User Agreement
Agreements executed between Platforms and customers who want to conclude transactions on these platforms are allowed to be signed in written form or via digital methods that the CMB determines which can replace the written form as long as such form allows verification of the customer's identity.
All types of provisions in user agreements that limit or remove the liability of CASPs against their customers will be deemed void.
CMB is entitled to determine the minimum and mandatory issues which should be included in the content of agreements between CASPs and their customers. Therefore, CMB will most likely introduce mandatory provisions concerning the formation and modification of the agreement, fees, costs and termination, similar to the banks, non-bank financial institutions and payment and e-money institutions.
Market Integrity
Pursuant to Crypto Law, except for the transactions related to crypto assets that the CMB considers that it is widely traded in foreign markets and whose prices are also formed in foreign markets, transactions that cannot be explained with a reasonable and economic justification and that may disrupt the safe, open and stable operation of transactions on the platform shall be subject to market abuse rules under the CML.
Moreover, Platforms are obliged to determine transaction orders and principles, establish the necessary surveillance system and take all kinds of preventive measures in order to ensure that transactions are executed in a reliable, transparent, effective, stable, fair, honest and competitive manner and to detect and prevent actions and transactions that distorting market. Platforms must make the determinations regarding the actions distorting the market and transactions executed before the platforms, to take the necessary measures, including the restriction, suspension and closing of the accounts that execute such actions and transactions, and to report their findings to CMB.
Liability of CASPs
According to Crypto Law, CASPs shall be liable for any damages incurred as a result of the CASPs’ (i) unlawful actions, (ii) failing to meet their cash payment and/or (iii) crypto-asset delivery obligations. In the event that the damage cannot be compensated by the CASP or it is evident that it cannot be compensated; the members of the CASP shall be held personally liable for damages to the extent that can be imposed on them based on their faults and the requirements of the situation.B.
Further, Crypto Law holds CASPs liable from damages arising from cyber-attacks, information security breaches, operation of information systems or any kind of behavior of the personnel of CASPs, to the extent that damages may be attributed to them according to their faults and the requirements of the situation. Again, personal liability provisions under the Article 110/B of CML shall apply in this regard. However, damages arose out from interruptions, order transmissions that could not be completed temporarily or non-completion of transaction/transfer without the fault of the CASPs are not considered as issues which will create liability under the Crypto Law.
Audit
CASPs shall be subject to financial and information systems independent audit carried out by independent audit firms included in the list announced by the CMB.
As an unorthodox practice, Crypto Law regulates that CMB and TUBITAK personnel can also participate in every step of the audit process as an observer without damaging the principle of auditor independence in order to improve their knowledge and capabilities with regards to the crypto sector. Those who participate in the audit in this way shall not bear any responsibility for the audit results obtained by the independent audit institutions and may not use the know-how of the authorized institution to benefit themselves or another authorized institution.
Additional principles and rules concerning the audit of CASPs information systems shall be determined in the secondary regulations of the CMB by obtaining the view of TUBITAK or other institutions and organizations deemed necessary.
Cross-border Provision of Services and Targeting of Turkish Residents by Foreign CASPs
“Targeting” Turkish residents for offering crypto-asset services by Platforms located abroad shall be deemed illegal crypto-asset service providing under the Crypto Law.
In the event of a Platform carries out one of the following activities it will be regarded as “targeting” the Turkish market, thus will be regarded as offering unlicensed services; (i) opens an office in Türkiye, (ii) establishes a website in Turkish or (iii) conducts direct/indirect advertisement and marketing activities regarding its rendered crypto-asset services via Turkish resident or entities located in Türkiye, the CMB shall acknowledges that such activities are directed at Turkish residents. CMB might determine further criteria to determine targeting activities.
Accordingly, on the condition a foreign CASP that does not carry out any “targeting” towards Turkish market, it may continue servicing its Turkish users that have previously onboarded with them on its own behalf without any prior marketing by the CASP (i.e. “reverse-solicitation”).
%2 Yearly Levy on Income
As per the Crypto Law, the Platforms shall pay to each of the CMB and TÜBITAK a fee at a rate of 1% of their total yearly income, excluding incomes from interests.
Transition Provisions
Those carrying out crypto asset service linking activities on the date of entry into force Crypto Law are obliged to apply to the CMB with the documents to be determined by the CMB within one month following the date of entry into force of Crypto Law and submit a declaration (i) that they will make the necessary applications within the period to be specified in the secondary regulation to obtain an operating license by meeting the conditions to be stipulated in the secondary regulations, or (ii) that they will take a liquidation decision within three months without damaging the rights and interests of the customers and that they will not accept new customers during the liquidation process.
Those wishing to commence their activities after the enforcement of Crypto Law shall apply to the CMB before commencing their activities and declare that they will make the necessary applications to obtain an operating license.
The applications made to the CMB will be announced on the CMB's website. After the secondary regulations to be issued by the CMB enter into force, institutions other than those that have the previously mentioned applications, will not be able to commence their activities without obtaining an operating license first.
Institutions to be liquidated shall announce this situation on their websites and also notify their customers via electronic mail, text message, telephone and similar communication tools.
Non-resident CASPs must cease their crypto-asset service activities targeting Turkish residents within three month from the Crypto Law is enacted.
Secondary regulations shall be issued within 6 months from enforcement date of the Crypto Law.
