The Draft Law on Regulations Regarding Crypto Assets, submitted to the Presidency of Grand National Assembly of Turkey on 16 May 2024, contains significant provisions related to crypto assets. In summary, it regulates the licensing of crypto asset service providers, criteria for shareholders and board members of crypto asset service providers, the general obligations of platforms and crypto asset service providers, foreign transactions, potential measures that can be taken, audit and sanctions, personal liability.
On 16 May 2024, a Draft Law Amending the Capital Markets Law No. 6362 ("Law") ("Draft Law") was submitted to the Presidency of the Grand National Assembly of Turkey. The Draft Law aims to regulate crypto asset service providers, the activities of crypto asset platforms, the custody of crypto assets, the trading and transfer of crypto assets by individuals residing in Turkey on crypto asset platforms, and the requirement for crypto asset service providers to obtain permission from the Capital Markets Board ("CMB") to establish and operate.
The general justification of the Draft Law states that the proliferation of crypto assets, as a result of evolving technology and needs, has also had an impact in Türkiye. It is noted that there are approximately 10 million users in Türkiye who have opened accounts and engaged in trading on crypto asset platforms. The absence of any legal regulation concerning crypto assets in Türkiye means that these widely conducted transactions are not under the assurance of an official authority, leaving the area prone to various abuses. Therefore, the Draft Law aims to regulate platforms in Türkiye, similar to international examples, to provide oversight and protection.
Another important point in the general justification is the recognition that blockchain technology will benefit finance and other sectors, and it is stated that a restrictive approach towards this innovative ecosystem has been avoided. The Draft Law does not aim to regulate blockchain technology itself but rather the trading activities of crypto assets on platforms that rely on this technology.
The highlights of the Draft Law are as follows:
1. Licensing
Crypto asset service providers operating within the scope of the Law are required to be licensed and regularly audited by CMB. Additionally, CMB sets forth the principles and regulations regarding the establishment and commencement of operations, shareholders, directors, personnel, organization, capital, capital adequacy, obligations, information systems and technological infrastructure, share transfers, permissible activities, temporary or permanent suspension of activities, and other principles and rules that must be followed during operations.
In order for CMB to permit the establishment and/or commencement of operations of crypto asset service providers, their information systems and technological infrastructure must comply with the criteria to be determined by the Scientific and Technological Research Council of Turkey ("TÜBİTAK").
2. Criteria for Shareholders and Board Members of Crypto Asset Service Providers
The shareholders of crypto asset service providers shall meet the following criteria:
- Pursuant to Law No. 2004 on Execution and Bankruptcy, not to be a bankrupt, not to have declared concordat, not to have had a restructuring application approved through reconciliation, or not to have been granted a bankruptcy postponement decision,
- Not directly or indirectly owning or controlling ten percent or more shares in factoring, financial leasing, financing, savings financing, asset management, insurance, reinsurance, pension companies and payment system operators, payment service providers and institutions operating in money and capital markets whose operating licenses have been revoked except for bankers subject to liquidation and voluntary liquidation,
- Except for negligent offenses, even if they have been pardoned, individuals must not have been convicted under the repealed Turkish Penal Code No. 765, the Turkish Penal Code No. 5237, or other laws for any of the following offenses, whether simple or aggravated embezzlement, embezzlement, extortion, bribery, theft, fraud, forgery, breach of trust, fraudulent bankruptcy, disgraceful crimes, and smuggling offenses excluding the use and consumption of smuggled goods, corruption in official tenders and procurement, tampering with the performance of an obligation, obstructing, destroying, or altering information systems, misuse of bank or credit cards, laundering of assets derived from crime, financing of terrorism, and crimes listed in Article 5 of Law No. 7262 on the Prevention of the Financing of the Proliferation of Weapons of Mass Destruction, offenses against the state's personality and the respect of its sovereignty and organs, offenses against state security, offenses against the constitutional order and its functioning, and offenses against national defense, the crime of disclosing state secrets, offenses against state secrets and espionage, offenses against relations with foreign states, offenses under the Anti-Terrorism Law No. 3713, tax evasion offenses, or participation in any of these offenses, and must not have been sentenced to imprisonment for five years or more for an intentionally committed offense, or have a final conviction for the offenses listed in this Law.
- Not being prohibited from trading pursuant to subparagraph (a) of the first paragraph of Article 101 of the Law on information misuse and market fraud,
- Having the necessary financial strength and the integrity and reputation required by the business,
- The shareholding structure should be transparent and clear.
The members of the board of directors and the individuals authorized to represent the crypto asset service provider without being a member of the board of directors must meet the conditions stipulated above for shareholders, except for the financial strength requirement.
Legal entity shareholders of crypto asset service providers holding directly or indirectly ten percent or more of the capital or voting rights or holding privileged shares granting the right to be represented on the board even if below this threshold, must also meet these criteria.
3. General Obligations
Organizations where one or more of the crypto asset trading, initial sale or distribution, swaps, settlement, transfer, custody and other transactions that may be determined ("Platform") must establish a written listing procedure for the determination of the crypto assets to be traded or and initial sale or distribution and the termination of their trading.
Prices are formed freely on the platforms. Except for transactions related to crypto assets commonly traded in international markets and priced accordingly, transactions on platforms that lack a reasonable and economic justification and disrupt the platform's security, transparency, and stability are subject to the provisions of Article 140 of the Law titled market-disrupting actions.
Cash and crypto assets belonging to clients are separate from the assets of crypto asset service providers and records are kept in accordance with this provision. The cash and crypto assets of the customers in the custody of the crypto asset service providers cannot be seized, pledged, included in the bankruptcy estate and no precautionary measures can be placed on them due to the debts of the crypto asset service providers, and the assets of the crypto asset service providers cannot be seized, pledged, included in the bankruptcy estate and no precautionary measures can be placed on them due to the debts of the customers, even for public receivables.
The procedures and principles regarding investment advisory and portfolio management for crypto assets shall be determined by the CMB. Crypto asset service providers comply with the principles determined by the Board regarding their publications, announcements, advertisements and announcements and all kinds of commercial communications.
4. Foreign Transactions
Engaging in activities for Turkish residents by platforms based abroad or providing a prohibited activity regarding crypto assets to Turkish residents within the scope of the regulations to be made by the CMB shall also be deemed as unauthorized crypto asset service provision. In the event of any of the following situations: opening a workplace in Turkey, creating a Turkish website, engaging in promotional and marketing activities directly and/or through persons or institutions resident in Turkey regarding the crypto asset services offered by platforms located abroad, the activities are deemed to be directed to residents in Turkey.
5. Precautions
CMB is authorized to require crypto asset service providers to strengthen their financial structures within an appropriate period of time, not exceeding three months, or to temporarily suspend the activities of crypto asset service providers directly without giving any deadline, to revoke their operating authorizations, to limit or revoke the signature authorizations of directors and employees whose responsibility is determined, in case it is determined that the crypto asset service providers cannot fulfill their cash payment and crypto asset delivery obligations arising from their activities or cannot fulfill them in a short period of time, or that their financial structure is seriously weakening independently of these, or that their financial situation has weakened to the extent that they cannot meet their commitments
6. Audit of Crypto Asset Service Providers and Sanctions
The provisions of the section titled "Inspection, Search and Seizure" of the Law shall apply to crypto asset service providers.
The financial audit and information systems independent audit of crypto asset service providers shall be conducted by independent audit institutions included in the list announced by the CMB. Additional procedures and principles regarding information systems audit shall be determined by the CMB in consultation with TÜBİTAK or other institutions and organizations deemed necessary.
Crypto asset service providers are liable for damages arising from the unlawful activities of crypto asset service providers and their personnel, as well as their failure to fulfill cash payment and/or crypto asset delivery obligations. If it is clearly determined that the damage cannot be compensated by crypto asset service providers, or cannot be compensated at all, then members of the crypto asset service provider shall be responsible to the extent that damages can be attributed to their fault and the circumstances, and personal liability may arise accordingly.
Individuals who act contrary to the law or regulations issued by the CMB shall be subject to administrative fines in accordance with the section titled "Administrative Offenses Requiring Administrative Monetary Penalties" of the Law.
Individuals and legal representatives of legal entities found to be conducting activities as crypto asset service providers without permission shall be punished with imprisonment for a term ranging from three to five years and with a judicial fine ranging from five thousand to ten thousand days.
The chairman and members of the board of directors and other members of the board of directors of the crypto asset service provider who embezzle the money or money substitute documents or securities, other goods or crypto assets entrusted to them due to their duty as a crypto asset service provider or which they are obliged to protect, store and supervise, shall be sentenced to imprisonment from eight to fourteen years and a judicial fine up to five thousand days, and shall be sentenced to compensate the damage of the crypto asset service provider.
If the offense is committed by fraudulent behavior to ensure that the embezzlement is not revealed, the perpetrator shall be sentenced to imprisonment from fourteen to twenty years and a judicial fine up to twenty thousand days. However, the amount of the judicial fine may not be less than three times the damage suffered by the crypto asset service provider and its customers.
If individuals who legally or effectively held the management or control of a crypto asset service provider, whose operating permit has been revoked, directly or indirectly use the resources of the crypto asset service provider or its customers, in any way that jeopardizes the secure operation of the crypto asset service provider, for their own benefit or the benefit of others, such actions are considered embezzlement resulting in harm to the crypto asset service provider or its customers. Those who commit these acts shall be sentenced to imprisonment for a term ranging from twelve to twenty-two years and a judicial fine of up to twenty thousand days; however, the amount of the judicial fine shall not be less than three times the damage suffered by the crypto asset service provider and its customers. Additionally, a decision shall be made for the joint and several payments of the incurred damage.
7. Personal Liability Regarding Crypto Assets
The chairman and members of the board of directors, other members of the board of directors of the crypto asset service provider who are found to have made decisions and transactions deemed embezzlement within the scope of the Law, and the real person shareholders who legally or de facto hold the management or control of the crypto asset service provider may be decided by the court to be bankrupt directly upon the request of CMB, by way of their personal liability in order to ensure that they are compensated primarily from the amount determined to have been embezzled, limited to the damage they caused to the customers. If these decisions and transactions are made for the purpose of providing benefits to third parties, they shall also be applied to the persons providing benefits based on the benefit they have provided. The assets of those against whom a personal bankruptcy decision has been taken shall be used to pay the losses of the customers directly if they are in cash, and if they are not, they shall be used to pay the losses of the customers by converting them into cash. Customer losses shall be paid first from the assets. In case the customer losses cannot be fully covered, payment shall be made garametrically. After the customer losses are fully covered, the remaining part shall be returned to those against whom a personal bankruptcy decision has been taken.
You can access the full text of the Draft Law through this link (only available in Turkish).
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.