The Banking Law No. 5411 ("Banking Law") and the relevant secondary legislation set forth various self-reporting mechanisms for the banks operating in Turkey. We aim to focus on whether such self-reporting becomes mandatory in cases where banks detect non-compliance within their organizations. Such self-reporting is not universal, and the requirements vary with respect to the parties that are subject to these self-reporting rules and to the matters that trigger the self-reporting requirements.

There are two main actors who are under an obligation to self-report: (1) the banks (sometimes along with the relevant members of staff), and (2) the independent auditors. While the obligation of the independent auditors is broader with regard to subject (i.e., a violation of the Banking Law or the relevant bank's articles of association triggers their self-reporting obligation), the relevant obligation with respect to the banks is stipulated for a finite and enumerated list of subjects.

Article 33 of the Banking Law stipulates that if an independent bank auditor detects any issues that may endanger the continued operation of the bank or any evidence demonstrating that the bank managers ("yöneticiler" in Turkish) have violated the Banking Law or the bank's articles of association, then the independent auditor should inform the Banking Regulation and Supervision Agency ("BRSA") accordingly. The scope of the term "manager" has been broadly envisaged in Article 3 of the Banking Law to include the heads and members of the board of directors, the auditing committee and the credit committee of a bank, the general manager, the deputy general manager, the authorized signatories, the regional managers, the branch managers and the managers of the units employed within the central head office organization (i.e., headquarters) of the bank. Accordingly, if a bank's independent auditor notices an irregularity and takes the view that a certain act triggers her obligation to inform the BRSA, this might be a disclosure point for her as a violation of the Banking Law. The obligation to notify the BRSA as per the foregoing should be considered to fall on the independent auditor, and not the bank.

Article 25 of the Banking Law shifts this reporting obligation in certain cases on to the bank (and, in the present case, the relevant staff member). It stipulates that the grounds or reasons for why a general manager and/or its deputies have left their office(s) shall be conveyed to the BRSA within 7 days of such member(s) of staff leaving their office(s).

Article 26 of the same law sets forth that persons who fail to comply with the requirements set out in subparagraphs (a) (which is mainly about being solvent), (b) (which is primarily about not having a significant ownership stake in or control over banks that have been transferred to the Savings Deposit Insurance Fund), (c) (which is mainly about not having a significant ownership stake in financial institutions before they have been transferred to the Savings Deposit Insurance Fund), and (d) (which primarily concerns being subject to certain penalties set out under the Turkish Criminal Code) of Article 8, shall not be employed as a general manager, deputy general manager, or as an authorized signatory at the banks. The same article further stipulates that the banks should immediately relieve such relevant persons from these managerial positions and also remove their signatory authority.

Additionally, Article 38 of the Banking Law sets forth the requirement to submit consolidated financial reports, and the Regulation Regarding Activity Reports of Joint Stock Companies renders it mandatory that joint stock companies state in their activity reports whether they or the members of their board of directors were subject to any administrative or judiciary sanctions during the time covered by the report. Article 10(4) of the Regulation Regarding Procedures and Principles of Banks' Activity Reports to be prepared by Banks requires the banks to submit their activity reports to the BRSA within 7 days following their publications.

In summary, except for the limited number of circumstances listed above, banks are not subject to mandatory self-reporting rules with respect to cases where they detect non-compliance within their organizations.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in December 2017. A link to the full Legal Insight Quarterly may be found here.

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