The Law on Amendments to the Capital Market Law numbered 6362, concerning crypto assets ("Law Amendment"), has now been enacted by the General Assembly of the Turkish Grand National Assembly ("TBMM") on 26 June 2024.
The Law Amendment aims to regulate the operations of crypto asset service providers ("CSPs"), the activities of crypto asset platforms, the custody of crypto assets, and the buying, selling, and transfer transactions of crypto assets that can be conducted by individuals residing in Türkiye on these platforms. It also seeks to establish regulations for CSPs to obtain permission from the Capital Markets Board ("CMB") to operate and function, ensuring that the principles and rules they must adhere to during their activities will be issued by the CMB based on articles to be added to the Capital Market Law numbered 6362 ("Law").
The amendments made by the Law Amendment are summarised as follows:
2. Definitions and Key Concepts are provided by the Law Amendment
In the Law Amendment, fundamental concepts such as "crypto asset," "wallet," "crypto asset service provider," "crypto asset custody service," and "platform" are explicitly defined.
Initially, the Regulation on the Non-Use of Crypto Assets in Payments dated 16 April, 2021 issued by the Central Bank of Türkiye ("CBT") ("CBT Regulation") defined crypto assets in our legal system as "intangible assets that are created virtually using distributed ledger technology or similar technology, distributed through digital networks, but not classified as fiat money, book money, electronic money, a payment instrument, a security, or other capital market instruments," emphasizing that crypto assets do not fall into the category of traditional financial instruments.
However, the Law Amendment defines crypto assets as "intangible assets that can be created and stored electronically using distributed ledger technology or similar technology, distributed through digital networks, and can represent value or rights." Therefore, moving away from the approach that crypto assets cannot be classified as fiat money, book money, electronic money, a payment instrument, a security, or other capital market instruments, the Law Amendment lays the groundwork for a broader regulatory framework for crypto assets.
The crypto asset definition provided under the Law Amendment aligns with the "Markets in Crypto-Assets" ("MiCA") regulation adopted by the European Union. In MiCA, crypto assets are also defined as a digital representation of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology.
In the General Justification section of the Law Amendment, it is stated that these crypto assets will be grouped into categories such as security tokens, electronic money tokens, utility tokens, and crypto assets that provide proof of ownership similar to copyright for photos, videos, sounds, artworks, and other similar items (more commonly known as non-fungible tokens). Additionally, it is mentioned that crypto assets can be classified as stable or unstable depending on whether there is an asset behind their value. This classification is also similar to the one in MiCA, which categorizes crypto assets into asset-referenced tokens, electronic money tokens, and other crypto assets, including utility tokens, subjecting them to specific regulations accordingly.
Another concept defined in the Law Amendment is the wallet, described as software, hardware, systems, or applications that enable the transfer of crypto assets and the online or offline storage of these assets or their related private and public keys. Thus, both online (hot wallets) and offline (cold wallets) wallets are included within this definition, which is kept broad to encompass new types of wallets that may emerge in the future.
The definition of CSPs is also provided in the Law Amendment. As known, CSPs were initially included among the obligated parties with the amendment made to Article 2/1-d of the Law No. 5549 on the Prevention of Laundering Proceeds of Crime and the Regulation on Measures Regarding the Prevention of Laundering Proceeds of Crime and Financing of Terrorism on May 1, 2021, but were not defined in this regulatory change.
Subsequently, in the guide published by the Financial Crimes Investigation Board ("MASAK") in 2021, a brief definition was made, describing CSPs as providers that mediate the buying and selling of crypto assets through electronic transaction platforms.
In the Law Amendment, CSPs are defined as: "platforms, entities providing crypto asset custody services, and other entities designated to provide services related to crypto assets, including their initial sale or distribution, as determined by the regulations to be issued based on this Law." Therefore, it is seen that CSPs are now considered in a broader spectrum beyond merely intermediating buying and selling platforms.
Based on this definition, the crypto asset custody service is defined as a service that protects users' private keys, provides access to their crypto assets, facilitates the management of these assets, and ensures their secure storage. A platform is described as a digital environment that enables the buying and selling of crypto assets between buyers and sellers, offering security, speed, and transparency to facilitate crypto asset transactions.
2. CMB's Authority and Licensing Requirements
The CMB is now authorised to determine the principles regarding the issuance of capital market instruments as crypto-assets, including the issuance of security tokens and their monitoring in dematerialised form on the electronic environment provided by the crypto-asset service providers where they are created and stored. This replaces the previous requirement for these instruments to be issued in dematerialised form and monitored by the Central Registry Agency ("CRA"). In other words, an exception has been introduced to the rule stipulating that capital market instruments must be issued in dematerialised form by being monitored at the CRA. The CMB has been authorised to determine the principles regarding the issuance of these instruments as crypto assets by being monitored electronically by crypto asset service providers outside the CRA system.
Additionally, the Law Amendment mandates that CSPs obtain permission from the CMB to be established and commence operations. This means that the establishment, commencement of operations, shareholders, managers, personnel, capital, capital adequacy, information systems, technological infrastructure, share transfers, activities, and all other principles and rules that CSPs must adhere to are under the supervision and oversight of the CMB. It is also stipulated that CSPs cannot transfer shares without the permission of the CMB.
CSPs are required to establish an internal control unit to ensure a secure system, and for their establishment/commencement of operations to be permitted by the CMB, their information systems and technological infrastructure must comply with the criteria set by TÜBİTAK (The Scientific and Technological Research Council of Türkiye).
The procedures and principles regarding the buying, selling, initial sale or distribution, exchange, transfer, and custody of crypto assets through platforms are also subject to the supervision of the CMB.
While CSPs are under the oversight and supervision of the CMB, it is explicitly stated that they will not be subject to other provisions of the Capital Market Law except for those explicitly referenced. In matters regulated under the Law and where CMB will impose the relevant obligations on banks, the opinion of the Banking Regulation and Supervision Agency ("BRSA") will be sought.
With the Law Amendment, an article on the principles regarding the activities of crypto asset service providers and the transfer and custody of crypto assets has been added to the section of the Law titled "Capital Market Institutions and Activities." This article stipulates that contracts between crypto asset service providers and their customers will be established in writing or through secure electronic methods determined by the CMB.
The CMB is authorized to regulate the content of these contracts, amendments, fees, and termination conditions, and it can invalidate terms that limit the liability of service providers. Platforms are required to establish internal mechanisms for resolving customer complaints and must continue to verify the identities of customers in accordance with Law No. 5549 on the Prevention of Laundering Proceeds of Crime and relevant legislation. Crypto assets traded on platforms will be subject to a written procedure and listed according to principles determined by the CMB. Prices will form freely, but the CMB will oversee market-disrupting activities and may apply the provisions of Article 104 of the Law titled market-disrupting activities in certain situations.
Regarding the custody of crypto assets, it is stipulated that in principle, platforms should retain the crypto assets of their customers within the customer's own wallets. It is further stipulated that the custody service for crypto assets that customers do not wish to keep in their own wallets must be provided by banks that have been authorised by the CMB and deemed appropriate by the BRSA, or by other institutions authorised by the CMB to provide crypto asset custody services. Furthermore, the cash belonging to customers must be kept in banks. During the discussion of the proposed amendments to the law in the Turkish Grand National Assembly, an additional clause was included in this article pertaining to the custody of crypto assets by banks with the intention of preventing any potential confusion or uncertainty that may arise in practice. This newly added sentence stipulates that the crypto assets held by banks and the cash belonging to customers within this scope will not be subject to the provisions of the insurance of deposits and participation funds regulated in Article 63 of the Law No. 5411.
Disputes between platforms and customers will be subject to general provisions, and the fact that platforms have been granted operating licenses by the CMB does not imply that transactions are under public guarantee, nor will crypto asset investors benefit from the CMB's investor compensation system. Records of crypto asset transfers and fund transfers will be kept securely, accessibly, and traceably, and transfers will be carried out in accordance with CMB and MASAK regulations.
According to Law Amendment, Law on Pledge of Movable Property in Commercial Transactions dated 20/10/2016 and 6750 does not apply to pledge agreements subject to crypto assets.
The Law Amendment amends Article 74 of the Law, expanding the membership obligation to the Turkish Capital Markets Association ("TCMA"). With this amendment, crowdfunding platforms and crypto asset service providers will also be required to join the TCMA if deemed appropriate by the CMB. These platforms and service providers must apply for TCMA membership within three months of receiving their authorization certificates, and failure to comply with this obligation may result in the suspension of their activities by the CMB.
3. Measures and Sanctions for CSP Activities
The Law Amendment also includes measures applicable to the activities of crypto asset service providers. The relevant article stipulates that the measures outlined in Article 96 of the Law will apply to unlawful activities and transactions of CSPs. For unauthorized crypto asset service provider activities, Article 99 will apply, and for announcements, advertisements, and any kind of commercial communication by those engaging in such activities, the first paragraph of Article 100 will be enforced.
The Law Amendment stipulates that the activities of foreign-based platforms targeting individuals residing in Türkiye or offering prohibited activities will be considered unauthorized crypto asset service provision.
Furthermore, the CMB has the authority to request the strengthening of the financial structures of CSPs within a period not exceeding three months if their financial structures weaken or if they fail to meet their obligations. The CMB may also temporarily suspend their activities, revoke their operating licenses, and limit or revoke the signature authorities of the managers and employees found responsible.
The CMB can decide to remove or block access to content for internet broadcasts that violate established principles, and this decision will be sent to the Access Providers Association. For non-internet media, those responsible for non-compliant advertisements, promotions, and announcements will be subject to sanctions in accordance with the relevant legislation.
The Law Amendment introduces comprehensive regulations on the supervision and sanctions applicable to crypto asset service providers. Accordingly, the compliance of CSPs' activities with the Law will be audited by the CMB and other relevant institutions. Additionally, the financial condition and information systems of CSPs will be examined by independent audit firms.
CSPs will be held liable for damages arising from their unlawful activities or failure to meet their obligations. If the damage cannot be compensated, the members of the CSPs may also be held responsible.
Moreover, CSPs will be accountable for losses of crypto assets resulting from the operation of their information systems, cyber-attacks, information security breaches, or personnel errors.
Administrative fines will be imposed on those who violate the Law or CMB regulations. Additionally, various measures can be taken against CSPs, and special regulations will be introduced to protect the assets of customers.
Individuals providing unauthorized crypto asset services will be subject to imprisonment for 3 to 5 years and a judicial fine. In cases where CSPs commit embezzlement, the chairman and members of the board of directors and other personnel can be sentenced to 8 to 14 years in prison and a judicial fine, which may extend up to 20 years under certain aggravated circumstances.
The Law Amendment also addresses the personal liability of CSPs. It stipulates that if the board of directors, other personnel, or real person shareholders of a CSP are found to have committed embezzlement, they will be personally liable to compensate the affected customers, limited to the embezzled amount. In such cases, the court may decide on their personal bankruptcy at the request of the CMB.
4. Transition Provisions for Existing CSPs
Provisional Article 11 added to the Law Amendment provides transition provisions for existing CSPs in Türkiye. CSPs operating as of the effective date of the regulations must apply to the CMB for an operating license within one month from the effective date or decide to liquidate and cease accepting new customers within three months. Those wishing to start operations after the effective date must apply to the CMB for an operating license before commencing activities. Applications to the CMB will be announced on the CMB website, and entities undergoing liquidation must notify their customers and announce it on their websites. Failure to meet these obligations will constitute unauthorized service provision.
5. Regulations for Foreign-Based CSPs
Foreign-based CSPs serving customers in Türkiye must cease their operations targeting Turkish residents within three months from the effective date of the Law Amendment. Additionally, ATMs and similar electronic transaction devices in Türkiye enabling the conversion of crypto assets to cash or other crypto assets must also cease operations within three months from the effective date.
6. Conclusion
The Law Amendment represents a significant legislative step for regulating and supervising the crypto asset market in Türkiye. By clarifying the definition of crypto assets, establishing rules for service providers' activities, and introducing measures to protect investors, the Law Amendment aims to reduce uncertainties in the market. Notably, the inclusion of CSPs under CMB supervision, the licensing requirement, and the determination of applicable sanctions aim to create a safer and more transparent environment in the market.
Please find the full text of the Law Amendment concerning crypto assets below:
https://cdn.tbmm.gov.tr/KKBSPublicFile/D28/Y2/KanunMetni/3ad744ce-52d5-4880-bcef-bb19346eae0c.htm
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.