03.07.2024
As it is known, the Regulation on the Non-Use of Crypto Assets in Payments was published in April 2021, which prohibited the direct or indirect use of crypto assets as payment instruments, the establishment of a business model in which crypto assets are used directly by banks and payment institutions, and the intermediary activity of crypto assets by payment institutions and electronic money institutions. Additionally, with the Regulation Amending the Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism published in the Official Gazette in May 2021, crypto asset service providers and savings finance companies were included in the scope of MASAK (Financial Crimes Investigation Board) obligors. Lastly, in December 2021, a draft law proposing amendments to the Capital Markets Law No. 6362 ("CML") with the aim of regulating crypto assets on a legislative level was published, but this draft was not adopted by the Grand National Assembly of Türkiye.
Following these developments, within the scope of the annual program of the Presidency published in the Official Gazette dated 25.10.2023, legislative works regarding digital assets have been brought back to the agenda by the Ministry of Treasury and Finance and the Presidency of Strategy and Budget. In this framework, a new draft law amending the CML was submitted on 16.05.2024 and as of 02.07.2024, the proposal has been adopted by the Grand National Assembly of Türkiye and published in the Official Gazette, introducing regulations on crypto assets in the CML (‘’Law Amendment’’).
Regulations Introduced Pursuant to the Law Amendment
The Law Amendment has amended various provisions of the CML to establish a regulatory framework for crypto assets. Secondary legislation is also to be issued by the relevant regulatory authorities for more detailed regulations on the subject. In this context, we set out below the main regulations introduced regarding crypto assets per the Law Amendment:
1. Authorized Bodies:
With the Law Amendment, the Capital Markets Board ("Board") will have the authority to regulate crypto assets that provide rights specific to capital market instruments. Also, The Board may determine principles for the sale or distribution of crypto assets on platforms, without being subject to the CML, if the crypto assets are created through the development of distributed ledger technology or a similar technological infrastructure and the value of the crypto assets is inseparable from such technology. Further, authorities of institutions and organizations arising from other legislation such as the Central Bank of Republic of Türkiye and Ministry of Trade are reserved.
2. Definitions in the Law Amendment:
The Law Amendment defines wallet, crypto asset, platform, crypto asset service provider, and crypto asset custody service*. The definition of crypto assets is determined as "intangible assets that can be created and stored virtually through distributed ledger technology or any other similar technology, distributed over digital networks and can represent value or rights".
3. Platforms and Authorizations:
Pursuant to the Law Amendment, the Board's approval will be required for the establishment and operation of platforms, and these platforms will be able to carry out activities exclusively determined by the Board. Likewise, changes in the capital structure may require the approval of the Board in certain circumstances.
The Board will also be authorized to make determinations regarding the platforms' shareholders, capital requirements, information systems and technological infrastructure, share transfers, and other similar matters. In line with this, the shareholders of the platforms must not to be bankrupt or under concordat, must not hold a direct or indirect share of ten percent or more, or not having control in the companies subject to liquidation, other than those undergoing voluntary liquidation in specified sectors, must not have any finalized conviction for crimes specified in the CML, must not be prohibited from trading on exchanges under Article 101 of the CML, and must have the necessary financial strength and the integrity and reputation required by the business, and if they are legal entities, their shareholding structure must be transparent and explicit. The same criteria apply to shareholders of legal entities holding shares in crypto asset service providers based on their holdings, and to natural persons entitled to more than half of the distributable profit of the crypto asset service provider or who have the right to elect or nominate more than half of the board of directors. Similarly, the members of the board of directors, and individuals authorized to represent the crypto asset service providers must also meet the conditions stipulated for shareholders, except for the financial strength requirement.
4. Regulations on Customer Information, Security and Assets:
Pursuant to the Law Amendment, records regarding the wallets through which customers' crypto asset transfers are made and bank accounts through which cash transfers are made will be kept in a secure, accessible, and traceable manner.
Cash and crypto assets will be separated from the assets of crypto service providers and records will need to be kept accordingly. These assets will not be subject to attachment, pledge, interim measure, and bankruptcy due to service providers' debts.
All kinds of requests for injunctions, attachments and similar administrative and judicial requests relation to the cash and crypto assets of customers shall be exclusively fulfilled by crypto asset service providers.
Platforms will have to establish internal mechanisms to resolve customer complaints.
Contracts between the platform and customers regarding the purchase and sale of crypto assets may be executed in writing or by way of a distant contract, or in any other manner that the Board determines to replace the written form requirement and that is realized through an information or electronic communication device and allows the client’s identity to be verified, and the Board will be able to determine the procedures and principles regarding these contracts. The contractual terms limiting the liabilities of crypto service providers against their customers will be void.
The principles regarding the interest accrual of customer accounts in banks will be determined separately by the Board.
5. Audit, Liability, Measures, and Sanctions:
Within the scope of the Law Amendment, financial audits and independent audits of information systems of crypto asset service providers will be conducted by independent auditing organizations designated by the Board. In this process, the Board and personnel of public institutions and organizations assigned to carry out audit activities may also participate as observers. Further, additional procedures and principles regarding the audit of information systems will be determined by the Board in consultation with TÜBİTAK or other institutions and organizations deemed necessary.
Crypto asset service providers will be liable for losses arising from the unlawful activities, operation of information systems, default on delivery obligations, cyber-attacks, information security breaches, technical failures and personnel conduct. Losses due to temporary inability to transmit orders or execute transactions/transfers resulting from interruptions in services provided by crypto asset service providers, without fault on their part or similar circumstances, shall not be subject to this provision. When service providers are unable to indemnify, the members of the service providers will be held liable for damages to the extent that liability can be imposed on them. In addition, upon the request of the Board, a personal bankruptcy decision may be issued against the natural persons who are held liable for damages.
The Board will be authorized to request the strengthening of the financial structure of service providers that it determines are unable to fulfill 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 authorization, and to limit and suspend the signature authorities of the managers and employees who are held responsible for this.
In terms of the measures to be applied for unlawful activities and transactions of service providers, unauthorized crypto asset service provider activities, and announcements, advertisements, and notices regarding these activities, reference is made to (i) the measures to be applied in unlawful activities or transactions of capital market institutions, (ii) the measures to be applied in unauthorized capital market activities and (iii) the measures to be applied in unlawful announcements, advertisements, and notices, respectively.
Platforms based abroad must terminate their activities for Turkish residents within three months as of the effective date, otherwise their activities will be considered as unauthorized crypto asset service provider activities. In the event of opening a workplace in Türkiye, creating a website in Turkish language, and engaging in promotional and marketing activities directly and/or through persons or institutions residing in Türkiye will be deemed to be directed to residents in Türkiye.
Within the scope of the measures to be applied in unauthorized crypto asset service provider activity, the Law Amendment provides for imprisonment from three to five years and a judicial fine from five thousand days to ten thousand days for natural persons and officials of legal entities who are found to operate as crypto asset service providers without authorization. Furthermore, the Law Amendment specifies a special offense of embezzlement and members of the board of directors, other personnel of the service providers, and the natural person shareholders of a service provider whose operating license has been revoked, who have held legal or de facto management or control of such service provider committed this offense are subject to imprisonment from eight to twenty-two years and a judicial fine from five thousand to twenty thousand days. Additionally, this offense may also lead to individual bankruptcy proceedings, and provisions under the Law of Criminal Procedure regarding confiscation and appointment of a trustee for company management may apply.
6. Transition Period and Fee Obligations:
Pursuant to the Law Amendment, existing crypto asset service providers are obliged to apply to the Board with the documents to be determined by the Board within one month as of the effective date and submit a declaration stating that they will make the necessary applications to obtain a license by meeting the conditions to be stipulated in the secondary regulations or that they will take a liquidation decision within three months without causing harm to the rights and interests of the customers and that they will not accept new customers during the liquidation process. Liquidated crypto asset service providers shall announce this situation on their websites and notify their customers. With the Law Amendment, a new platform seeking to operate must apply to the Board and submit declaration stating that they will meet the conditions to be stipulated in the secondary regulations to obtain a license.
Platforms that continue to operate without applying to the Board for an operating authorization within the period specified in the secondary regulations will be deemed to be engaged in unauthorized crypto asset service provider activities.
Each year, starting in 2025 for the revenue recorded in 2024, one percent of all revenues of the platforms, excluding the interest revenues of the previous year, shall be paid to the Board and one percent to TUBITAK until the end of May of the relevant year. Other principles regarding accruals and payments will be determined by the Board.
The activities of ATMs and similar electronic transaction devices located in Türkiye that allow customers to convert crypto assets into cash or cash into crypto assets and to transfer crypto assets shall be terminated within three months as of the effective date, and ATMs that do not terminate their activities shall be closed by the competent authorities.
*
Wallet is defined as "software, hardware, systems or applications that enable the transfer of crypto assets on distributed ledger technology and the online or offline storage of these assets or the private and public keys relating to these assets”.
Crypto asset service provider is defined as ''platforms, organizations providing crypto asset custody service and other organizations designated to provide services related to crypto assets, including the initial sale or distribution of crypto assets in the regulations to be enacted on the basis of this Law''.
Crypto asset custody service is defined as "the custody and management of crypto assets of the customers of platforms or the private keys that provide the right to transfer these assets from the wallet or other custody services to be determined by the Board".
Platform is defined as ''organizations where one or more of the following transactions are carried out: crypto asset trading, initial sale or distribution, exchange, transfer, the custody required by them and other transactions that may be determined''.
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