LAW CONTAINING REGULATIONS ON CRYPTO ASSETS
To facilitate a healthy development of the crypto asset sector in Turkey, it was deemed necessary to establish a comprehensive legal framework. In this regard, Law No. 7518 Amending the Capital Markets Law (“Amendment Law”), which includes long-awaited regulations, entered into force via the Official Gazette dated July 2, 2024 and numbered 32590.
Numerous terms have been defined by the Amendment Law; (i) crypto asset refers to non-material assets that can be created and stored electronically using distributed ledger technology or a similar technology, distributed over digital networks and capable of expressing value or rights, (ii) crypto asset trading platform (“Platform”) refers to entities that engage in one or more of the crypto asset trading, initial sale or distribution, exchange, transfer, storage, and other transactions required by these and any other transactions that may be determined, (iii) crypto asset service providers (“Service Providers”) refer to platforms, crypto asset storage service providers and other entities that specified in the regulations to be made on the basis of this Capital Markets Law to provide services in relation to crypto assets, including the initial sale or distribution of crypto assets, (iv) wallet refers to software, hardware, systems or applications that enable the transfer of crypto assets and the online or offline storage of these assets or the private and public keys related to these assets.
* The Amendment Law introduces regulations stating that it is essential for customers to keep their crypto assets in their own wallets, while presenting regulations on the storage of crypto assets and cash that customers do not prefer to keep in their own wallets belonging to customers.
On this basis, crypto asset storage services that are not kept in customers' own wallets must be provided by banks authorised by the Capital Markets Board ("Board") and deemed appropriate by the Banking Regulation and Supervision Agency ("BRSA") or by other institutions authorised by the Board to provide crypto asset storage services.
Furthermore, the principle to safeguard the cash belonging to customers in banks has been introduced. In accordance with Article 63 of the Banking Law No. 5411, crypto assets and cash belonging to customers kept in banks are exempt from the provisions on insurance of deposits and participation funds.
The regulatory framework encompasses measures, obligations and sanctions pertaining to unlawful activities and transactions.
Service Providers shall be primarily liable for losses arising from the unlawful activities, failure to fulfil delivery obligations, cyber-attacks, technical failures, operational errors or misconduct of the personnel. If the damages cannot be collected from the crypto asset service providers or it is obvious that they cannot be collected from them, the members of the crypto asset service providers shall be liable to the extent that the damages can be attributed to them, according to their fault and the requirements of the situation.
Any real person or legal entity who affix their signatures to documentation pertaining the sale or distribution of crypto assets shall be severally liable for losses arising from the inclusion of inaccurate, deceptive, or incomplete information within said documentation.
Besides, any contractual terms that eliminate or limit the liability of Service Providers to customers in the contracts to be concluded will be invalid.
Regarding the measures to be implemented for unlawful activities or transactions conducted by Service Providers and announcements, advertisements and disclosures related to unauthorized Service Providers, the Amendment Law cites the measures to be applied in unlawful activities or transactions of capital market institutions, in unauthorised capital market activities, and in unlawful announcements, advertisements, and disclosures. Consequently, those engaging in such unauthorised activities shall be sentenced to imprisonment and judicial fine.
In the event that a Service Provider fails to fulfill their payment and crypto asset delivery obligations or demonstrates a weakened financial structure; the Board may grant a specified period for the aforementioned party to implement measures to strengthen their financial structure. In cases where the period has elapsed or in instances of urgency, the Board is authorized to temporarily suspend their activities, to cancel their authorizations, and restrict or revoke the signature authorizations of the responsible manager and employees.
* In accordance with the Amendment Law, 1% of the annual revenues generated by the Platforms, excluding the interest income, will be paid to the Board, and one percent to the Scientific and Technological Research Council of Turkey ("TÜBİTAK") for the advancement of block chain and associated technologies.
The practice of recording income to the budget of the Board and TUBİTAK will commence in 2025 over 2024 revenues. (Law, provision no. 130/5)
Moreover, the Board published an announcement ("Announcement") regarding the Amendment Law on February 7, 2024.
Two alternative scenarios are postulated for organisations already operating as Service Providers; (i) Organisations that intend to continue their activities must submit their declarations in writing, application form and documents as set out by the Board by August 2, 2024; (ii) Organisations that will not intend to continue their activities must submit their declarations in writing that they will take a liquidation decision and they will not accept new customers during the liquidation process, together with the application form and documents published by the Board until October 2, 2024. The applications will be announced in two separate lists on the Board's website; an organisation not included on these lists will be deemed to be engaged in unauthorised crypto asset Service Provider activities.
It is regulated that those who intent to initiate their activities after the date of the Regulations must apply to the Board before commencing their activities, and make the necessary applications by meeting the conditions stipulated in the secondary regulations. Both groups will be able to obtain an operating license after the secondary regulations regarding the activities of Service Providers and the transfer and custody of crypto assets enter into force.
Platforms based abroad are required to terminate their activities for Turkish residents until October 2, 2024 at the latest. Otherwise, they will be considered as unauthorized crypto asset service providers. In this context, platforms based abroad will be required to establish a company in Turkey and obtain an operating license. In addition, the activities of ATM’s and similar electronic transaction devices located in Turkey that allow customers to transfer crypto assets and to convert crypto assets into cash or cash into crypto assets must be terminated until October 2, 2024 at the latest.
Conclusion
The Amendment Law aims to provide the necessary regulatory infrastructure to support the healthy development of the crypto asset sector in Turkey and serves as a reference for future regulatory efforts for the crypto asset markets. With the effect of the secondary regulations, the scope of action of financial technology manufacturers providing services to Service Providers will also become clearer.