Law No. 7518 on the Amendment of Capital Markets Law ("Law"), known as the Crypto Asset Law, entered into force on its publication in the Official Gazette No. 32590 on 2 July 2024.
General Information
The long-awaited amendment regulates provisions regarding crypto assets, crypto asset trading platforms, crypto asset custody services and crypto asset service providers. Secondary regulations are pending.
The Law defines:
- Crypto assets as intangible assets that can be created and stored electronically using distributed ledger (or similar) technology; they are distributed over digital networks; and can express values or rights.
- A crypto asset platform ("Platform") as a platform through which crypto asset trading, initial sale or distribution, clearing, settlement, transfer, custody and other transactions as may be determined are undertaken.
- A crypto asset custody service as the storage and management of the crypto assets of Platform customers; or the private keys that provide the right to transfer from the wallet related to these assets; or other custody services to be determined by the Capital Markets Board ("The Board"),
- Crypto asset service providers are Platforms, crypto asset custody service providers and other organisations designated to provide services in relation to crypto assets including the initial sale or distribution of crypto assets as determined by regulations under the Law,
The Board is authorised to establish regulatory procedures, take general and context-specific decisions, and impose measures and sanctions in relation to crypto assets that provide rights specific to capital market instruments.
In addition, the Law refers to TÜBITAK (Scientific and Technological Research Institution of Turkey) with respect to criteria regarding the technological characteristics of crypto assets as well as the information systems and technological infrastructures of crypto asset service providers.
Scope: The Law governs (i) crypto assets to be traded on the Platforms or to be sold or distributed for the first time and (ii) crypto assets that provide rights specific to capital market instruments. Accordingly, crypto assets other than those mentioned above are not subject to the Law. However, the Board may set regulations for the sale or distribution of crypto assets created through the development of distributed ledger technology (or a similar technological infrastructure which has a value that cannot be separated from this technology) , on platforms without being subject to the provisions of the Law regarding capital market instruments.
Capital Market Instruments: The Law allows the Board to authorise the issuance of capital market instruments as crypto assets.
Protection of the Value of Turkish Currency: Crypto assets are defined as "intangible assets" under the Law. However, it preserves the provisions of the Law on the Protection of the Value of Turkish Currency (dated 20/2/1930 and numbered 1567) and relevant legislation regarding all kinds of transactions made with crypto assets. As crypto assets are not defined as "foreign currency" it is anticipated that additional regulations will be introduced in the future.
Important Periods for Existing Crypto Asset Service Providers
Permit Requirement and Commitment: Crypto asset service providers operating on the Law's entry into are obliged to make a declaration indicating they will apply to the Board for an operating licence within 1 month following the Law's effective (publication) date by providing the documents to be determined by the Board and the conditions regarding the secondary regulations to be issued.
Voluntary Termination of Activities: Crypto asset service providers who intend to discontinue their activities are required to submit a declaration to the Board that they will commence liquidation procedures by 2 October 2024 without harming customer rights and interests (and not accepting new customers during the liquidation process). Customers wil be notified of liquidation by e-mail, text message, telephone and similar communication tools.
Mandatory Termination of Activities: The activities of (i) crypto asset service providers residing abroad and (ii) ATMs and similar devices that allow cash conversion or transfer of crypto assets in Türkiye shall be terminated by 2 October 2024. Service providers and devices not terminated by this date will be sealed and closed by the relevant authorities.
The Establishment and Commencement of Operations of Crypto Asset Service Providers
Board Permission: Crypto asset service providers are required to obtain permission from the Board in order to be established and commence operations.
Permit and Operating Criteria: The Board will determine the principles regarding (i) the establishment and commencement of activities, the activities they may perform, and the temporary or permanent suspension of their activities; (ii) their partners, managers, personnel, organisation and share transfers;
(iii) their capital and capital adequacy; (iv) their liabilities; (v) their information systems and technological infrastructure in light of the criteria determined by TÜBİTAK. Furthermore, the Board's permission will be sought for share transfers of crypto asset service provider companies. Said shareholders must not be in a state of liquidation/bankruptcy and must not have been convicted of certain offences. Finally, banks may only operate as crypto service providers with the approval of the Banking Supervision and Regulation Agency.
Crowdfunding platforms and crypto asset service providers are obliged to become a member of the Turkish Capital Markets Association.
Other Provisions Regarding Crypto Asset Service Providers
Determination of Crypto Assets: Platforms are obliged to establish a written listing procedure for determining crypto assets to be traded (or to be first sold or distributed) and for terminating their transactions (with the Board allowed to regulate said principles and guidelines).
Separate Record Keeping: Customers' cash and crypto assets are separate from the assets of crypto asset service providers and records must be maintained accordingly. Neither cash nor crypto assets held by customers of crypto asset service providers can be seized, pledged, included in bankruptcy estates, or be subject to precautionary measures for public receivables regardless of any debts owed by crypto asset service providers.
Agreements: Agreements signed between crypto asset service providers and customers may be established in writing or remotely using distance communication tools determined by the Board. They may be undertaken through an information or electronic communication device allowing the verification of customer identity. Procedures and principles related to this will be determined by the Board.
The Board may determine the arrangement, scope, amendment, fees and expenses, expiry and termination of agreements between crypto asset service providers and their customers as well as the minimum matters to be included in the content of these agreements.
Any contractual provision that eliminates or limits the liability of crypto asset service providers to their customers is invalid.
Revenue Recording: One percent of all platform income, excluding interest income from the previous year, shall be recorded as revenue by being paid to the Board every year. An additional one percent shall be paid to TÜBİTAK for the development of blockchain and related information technologies by the end of May of the relevant year.
Audit: Additional personnel may be assigned to conduct audits performed on crypto asset service providers together with duly authorized Board personnel or to provide technical support to those conducting audits as permitted by their own regulations.
The financial and information systems audit of crypto asset service providers shall be conducted by independent audit firms designated by the Board. Additional rules regarding information systems audit shall be determined by the Board in consultation with TÜBİTAK or other relevant institutions.
Sanctions
Unauthorized Activity: The Law stipulates a prison sentence of 3 to 5 years and a judicial fine ranging from five thousand to ten thousand days for individuals or legal entities who operate as crypto asset service providers without obtaining permission from the Board.
Suspension/Revocation of Activities: The Board is authorized to request the strengthening of the financial structures of crypto asset service providers, temporarily suspend their activities, revoke their operating licenses, and limit or suspend the signing authority of responsible managers and employees if it is determined that they are unable to fulfill cash payment and crypto asset delivery obligations arising from their activities or that their financial structures are seriously weakening or have weakened.
Personal Liability: Crypto asset service providers are responsible for damages arising from their unlawful activities and their failure to fulfill cash payment and/or crypto asset delivery obligations. However, if it is not possible to recover damages from the crypto asset service providers (or if it is clearly evident that recovery is not possible, the members of the crypto asset service providers are liable to the extent that the damages can be attributed to them based on their faults and the circumstances of each situation.
Lack of Technological Security Measures: Crypto asset service providers are responsible for crypto asset losses arising from the operation of their information systems, any cyber attacks, information security breaches, and the behavior of their personnel. If it is not possible to recover losses the members of the crypto asset service providers are liable to the extent that the losses can be attributed to them based on their faults and the circumstances of the situation. However, no liability is foreseen for damages arising from temporary interruptions in service that occur through no fault of the crypto asset service providers such as the inability to transmit orders or execute/ transfer transactions.
Embezzlement: Crypto asset service provider board members, executives, and other members who embezzle money, money substitutes, securities, other assets, or crypto assets entrusted to them (or for which they are responsible for protection, custody, or oversight due to their role as a crypto asset service provider), shall be sentenced to imprisonment for a term ranging from 8 to 14 years and fined up to five thousand days. They are also liable for any financial harm caused to the crypto asset service provider.
If the natural person partners who legally or effectively held management or control of a crypto asset service provider whose operating permit has been revoked will be found to have committed embezzlement if they endanger its secure operation, directly or indirectly, by using the provider's resources provider or its customers to their own or others' benefit, resulting in harm or damage to the crypto asset service provider or its customers. They could be subject to a sentence of 12 to 22 years' imprisonment years and fined up to twenty thousand days.
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.