INTRODUCTION
The Law No. 7518 on Amendments to the Capital Markets Law ("Law") was published in the Official Gazette No. 32590 on July 2, 2024, and thereby came into effect, introduced new and long-expected provisions to the Capital Markets Law No. 6362 ("CML"), on crypto assets, which was a busy topic for both the finance the law communities. The Law, which will introduce fundamental changes to the regulations concerning cryptocurrencies in Turkey, includes new regulations for cryptocurrencies and service providers related to these assets.
ⅠⅠ. RECENT DEVELOPMENTS
Definition of Crypto Assets
The Law introduces new definitions to the CML, in which the most important one is the "cryptographic asset"; defined as an intangible asset that can be electronically created and stored using distributed ledger technology or similar technology, distributed over digital networks, and can represent value or rights. Additionally, the following definitions have also been added to the CML:
- Wallet: Software, hardware, systems, or applications that enable the transfer of cryptographic assets on distributed ledger technology or similar technology and allow the offline storage of these assets or the private and public keys related to these assets.
- Crypto Asset Service Provider ("Service Providers"): Platforms, institutions providing cryptographic asset custody services, and institutions designated to provide services related to cryptographic assets in regulations to be made based on this law.
- Crypto Asset Custody Service: The storage of cryptographic assets of platform customers or the private keys providing wallet transfer rights related to these assets, and other custody services to be determined by the Capital Markets Board ("Board").
- Platform: Institutions where transactions such as the purchase, sale, exchange, and transfer of cryptographic assets are carried out.
- TÜBİTAK: Refers to the Scientific and Technological Research Council of Turkey.
Board's Duties
The current regulation mandates the dematerialized issuance of capital market instruments and the tracking of related rights by the Central Securities Depository ("CSD"). It has been stipulated that the Board is granted the authority to enable the issuance of crypto assets without their inclusion in the CSD system. The Board will establish the principles concerning the issuance of crypto assets and their electronic registration and monitoring by Service Providers.
Rules and Sanctions for Service Providers
Service Providers are required to obtain authorization from the Board to be established and commence operations. The Board will determine the sanctions to be applied in cases of establishment, management, supervision, and irregularities. Additionally, the information systems and technological infrastructure of Service Providers must comply with the criteria set by TÜBİTAK.
Conditions Imposed on Shareholders, Board Members, and Representatives
The requirements for the shareholders, board members, and representatives of Service Providers have been established. Shareholders must not be bankrupt, must not have declared concordat, must not have convictions for crimes listed in relevant laws, and must possess the necessary financial strength, integrity, and reputation.
Obligation to Sign Agreement
It has been made mandatory for Service Providers to enter into agreements with their clients, and the ability to establish contractual relationships through remote communication tools, as granted to banks and intermediary firms, has also been extended to Service Providers. The Board will determine the specifics of these contracts, including their content and termination.
Cyrpto Assets Custody
It has been stipulated that the primary principle for Platforms is that clients' crypto assets should be held in their own wallets. For crypto assets that clients do not prefer to keep in their own wallets, the custody service must be provided by banks authorized under the regulations to be made by the Board and approved by the Banking Regulation and Supervision Agency ("BRSA"), or by other institutions authorized by the Board to provide crypto asset custody services. Furthermore, it is mandated that clients' cash must be held in banks.
Crypto assets and clients' cash held in banks under this arrangement will not be subject to the deposit and participation fund insurance provisions stipulated in Article 63 of the Banking Law No. 5411. Within this framework, the Board is authorized to establish separate principles for custody services for each type of crypto asset or based on the technological characteristics, nature, and quantity of the crypto assets.
Customer Cash and Crypto Assets
Cash and crypto assets belonging to clients will be kept separate from the assets of crypto asset Service Providers, and records will be maintained in accordance with this provision. Regardless of any circumstances, cash and crypto assets held by Service Providers on behalf of clients cannot be seized, pledged, included in bankruptcy estates, or subject to precautionary measures, even for public receivables, due to debts of the Service Providers, or debts of clients affecting the assets of the Service Providers.
Listing Procedures
Platforms are required to establish a written listing procedure for determining crypto assets that will be traded or undergo initial sale or distribution. The principles and procedures regarding this matter will be regulated by the Board. The listing of a crypto asset by platforms does not imply any endorsement or guarantee by the public.
Security of Customer Cash
Regarding the security and management of customer cash held by banks, it has been stipulated that customer cash will be segregated from the cash assets of investment firms and cannot be used as collateral. Furthermore, these accounts cannot be subjected to blocking, pledge, or similar restrictions in favor of the investment firm. Investment firms are required to report to the Board in the manner and frequency determined concerning the accounts where customer cash is recorded.
Sanctions for Unauthorized Activities
When it is determined that capital market activities are conducted without authorization via the internet, the Board will decide on the removal of content or blocking access related to internet broadcasts. This decision will be sent to the Internet Access Providers Union for implementation.
Activities of Foreign-Based Platforms in Turkey
If overseas-based platforms open a business location in Turkey, establish a Turkish-language website, or directly or indirectly promote crypto asset services to individuals or entities residing in Turkey, these activities will be considered as targeting individuals in Turkey.
Approval and Supervision of Service Providers
The Board will have the authority to temporarily suspend the operations of Service Providers or restrict the signing authority of their executives in cases where they fail to fulfill obligations such as cash payments and crypto asset delivery, or if their financial structures significantly weaken. Independent audits of the financial and information systems of Service Providers will be conducted by audit firms listed by the Board.
Unlawful Activities and Sanctions
Service Providers are stated to be liable for damages arising from their unlawful activities and failure to fulfill obligations. In cases where the damage cannot be compensated by the Service Provider, their members will be held responsible in proportion to their faults. Individuals found conducting activities as Service Providers without authorization may face imprisonment and fines.
Transition Period and Compliance Process
As of July 2, 2024, within one month from the effective date of the regulations, existing Service Providers are required to apply to the Board for operational permits or submit a declaration stating that they will cease accepting new clients within three months without harming customer rights and interests. Overseas-based Service Providers must terminate their activities in Turkey within three months.
ⅠⅠⅠ. CONCLUSION
The new regulations impose significant obligations and responsibilities on all parties operating in the crypto asset sector. It is crucial for companies operating in the sector to take necessary steps to comply with these regulations.
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.