As an initiative to regulate crypto assets, Turkey published its Regulation on not Using Crypto Assets in Payments ("Regulation") on April 16, 2021. According to Article 5 of the Regulation it will enter into force on April 30, 2021. Consisting of important provisions on crypto assets the Regulation can bring significant impact on the country's agenda regarding crypto assets.
While the Regulation reserves that its definition for crypto assets should be deemed applicable for implementation of the Regulation itself, in its Article 3/1, it is important to underline that the Regulation provides a definition for crypto assets for the first time under Turkish law as "intangible assets that are created virtually using distributed ledger technology or a similar technology and distributed over digital networks, but are not qualified as fiat currency, fiduciary money, electronic money, payment instrument, securities or other capital market instruments". According to this definition, there are three core principles for a digital asset to be defined as a crypto asset as follows: (i) being an intangible asset, (ii) created virtually using distributed ledger or a similar technology, and (iii) distributed over digital networks. While the definition also excludes fiat currency, fiduciary money, electronic money, payment instruments, and security and any other capital markets instruments from the scope it designated for 'crypto assets', it should be kept in mind that, since the definition expressly limits its scope with the implementation of this Regulation, the definition should not be considered as a general rule that rules out the aforementioned financial instruments from the scope of crypto assets phenomenon for Turkish law.
In addition to the definition of crypto assets, Regulation has introduced several prohibitions on their usage as a payment medium. Prohibitions introduced by the Regulation regarding the usage of crypto assets are as follows:
The Regulation provides that crypto assets shall not be used directly or indirectly in payments. That being said, the Regulation does not mention investment and/or trading activities of crypto assets. Thus, it could be inferred that, however, it is not prohibited to invest in crypto assets through exchange platforms.
Based on the literal interpretation of the Article 3/2, its scope exceeds beyond provision of payment services (in fact, the scope of payment services is regulated under Article 3/3) in crypto assets; instead it prohibits individuals to use crypto assets as type of payment performance.
On that note, the Regulation's ground should be mentioned. The Central Bank of the Republic of Turkey ("CBRT") issued the Regulation on the basis of Article 4/3(I-f) of the Act on Central Bank of Republic of Turkey numbered 1211 ("CBRT Law"), and Articles 12/3 and 18/6 of the Act on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions ("Payment Services Law") numbered 6493. Aforementioned basis laws entitles the CBRT to respectively regulate 'methods and instruments' to be used for payments and activity scopes of payment and e-money institutions. However, it could be reserved that both the CBRT Law and the Payment Services Law do not entitle the CBRT to regulate payments realized without payment service types and instruments defined in laws, nor intervene to contractual relationships between natural and/or legal persons.
Pursuant to Article 48 of the Constitution of the Republic of Turkey ("Constitution"), every person shall have the fundamental right to freely enter into a contract under the principle of "liberty of contract". This freedom is further granted under the Article 26 of the Turkish Code of Obligations as: "the content of a contract can be freely determined provided that it is within the limits prescribed by law". Equally important, the "right to property" is protected by Article 35 in the Constitution, which shall also protect ownership rights on crypto assets.
Within this framework, it could be asserted that the regulatory power of the CBRT should not be implemented, nor understood, in a way undermining the "liberty of contract" principle and persons' "right to property", although CBRT has competence for regulation and supervision of activities of payment institutions and electronic money institutions. Also, given the decentralized nature of peer-to-peer blockchain transactions enforcement of a prohibition of crypto asset transfers realized for the purposes of a payment may bring further challenges. Therefore, Article 3/2 should be interpreted as a prohibition on use of crypto assets as a payment instrument, merely where such instruments are explicitly defined in applicable laws or regulations.
In accordance with Article 3 of the Payment Services Law, the following entities qualify as payment service providers: (i) banks, (ii) electronic money institutions, (iii) payment institutions, and (iv) Turkish Postal and Telegraph Corporation (Posta ve Telgraf Teşkilatı A.Ş.). Accordingly, the institutions and organizations enumerated above cannot provide services for the direct or indirect use of crypto assets in payments, subject to the scope of "payments" we presented above in section 2(i).
This article could be identified as elaboration of Article 3/3. While Article 3/3 prohibits usage of crypto assets within payment services as a principle, this article introduces a broader scope of not "developing business models that crypto assets are directly or indirectly used for provision of payment services and electronic money issuing". The term 'used' in the text could be understood as spending, debiting or crediting of crypto assets.
Within this respect, in order to prevent evasions of Article 3/3, we believe the prohibition under this article covers broad cases such as but not limited to where crypto assets are used as an infrastructure or collateral assets for realization of a payment, payments are realized with cards linked with crypto asset wallets, a payment is initiated from a crypto asset account even if its recipient would receive the paid funds in a fiat currency or a payment initiated from a non-crypto asset account lands to its recipient as a crypto asset through instant conversion. Also, issuing a licensed e-money in exchange of crypto assets would be prohibited.
Furthermore, we are of the opinion that the prohibition under this article would prevent banks, payment institutions and e-money institutions to directly sell or intermediate trading of crypto assets from their mobile or desktop online access points, nor they issue cards that instantly converts crypto assets to fiat currencies during payments.
Article 4/2 of the Regulation expressly forbids payment and e-money institutions to act as an intermediary for fund transfers from or to platforms that offer trading, custody, transfer, or issuance services for crypto assets. This article encompasses only payment and electronic money institutions. In other words, as of April 30, 2021, payment and electronic money institutions that are under the CBRT's license regime are prohibited for intermediating fund transfer in crypto asset service platforms and their users, i.e. providing payment services to and from crypto asset service platforms.
On the other hand, since Article 4/2 does not include the concept of "payment service providers", as Article 4/1 do; instead the article refers specifically to 'payment and e-money institutions', we understand that banks are not subject to this prohibition.
