A year ago, long-awaited secondary legislation of the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Fund Institutions ("Law") structuring the details of payment systems and payment services, the Regulation on Payment Services and Electronic Money Issuance and Payment Institutions and Electronic Money Institutions ("Regulation") and the Communiqué on the Management and Audit of Payment Institutions and Electronic Money Institutions' Data Systems ("Communiqué") slightly relieved the sector players after its publication on June 27th, 2014.
The Regulation, in summary, outlines the procedures and principles regarding authorization, activities of payment institutions, electronic money institutions and payment services and e-money issuance while the Communiqué regulates the management of data systems used by these institutions in their activities under the Law as well as their audit to be executed by independent auditors.
However, the impact of this legislation on business practices still remains obscure. Despite the enactment of the secondary legislation, e-money and electronic payment regime still holds its mystery when it comes to blending practices with the regulatory provisions under Turkish law. While the system is commonly used in daily life, many of us are still uncertain about its consequences and effects in the regulatory world, particularly in terms of the strict criteria and measures imposed and brought upon sector players which have, to this date, conveniently been operating in a non-regulated environment.
These players are now counting down for the expiration of the time frame set for obtaining an operating license from the Banking Regulation and Supervision Agency ("BRSA") since the Law strictly prohibits payment and electronic money institutions from performing their commercial activities without holding an operating license: The time period of 1 (one) year set down for the receipt of the operating license from the BRSA pursuant to provisional Article 2 of the Law, started on June 27th, 2014 (i.e. enforcement date of secondary legislation). Therefore, the deadline to comply with the requirements set under the Law and its secondary legislation and to obtain a license for players desiring to operate as payment or electronic money institutions expires on June 27th, 2015.
As we countdown to June 27th, 2015 this article aims to offer a reminder on the regulatory measures set for payment and electronic money institutions by further focusing on the exemptions for the Law and the requirements to be fulfilled until the set deadline.
II. Description: Payment Institutions & Electronic Money Institutions
- Electronic money institutions;
Article 3 of the Law briefly describes electronic money institutions ("EMI") as the legal person that has been granted authorization to issue e-money under the scope of the Law.
To be more specific, the EMI, acting as an intermediary, allows its users to create an e-money account wherein the amount of the e-money is equivalent to the fund (e.g. Turkish lira) paid in return and to use the account for purchasing goods and/or services from providers that accept the issued e-money.
The Law outlines the liabilities of EMI in Article 20 in terms of issuance of e-money. In this respect, EMI shall (i) issue e-money at par value of funds that are received, (ii) convert the funds deposited by the user into e-money without any delay and have them accessible for use, and (iii) transfer the collected funds to a separate account before the banks regulated under the Banking Law No. 5411 and maintain them therein during the term of use. EMIs are also prohibited from issuing credits and providing the bearers of electronic funds with any interest or any other benefits in connection with the term of retaining such electronic funds.
- Payment Institutions;
In Article 3 of the Law, payment institution ("PI") is described as a legal person authorized for offering and providing "payment services" under the Law. Payment services are:
- all operations required for operating a payment account, including services allowing deposit of money to a payment account and withdrawal of money from a payment account,
- direct debiting transactions, including one-off transactions, which involve transfers by the payment service users of their funds retained by the payment service providers, payment transactions effected by payment cards or any other similar instruments, and fund transfers including payment orders,
- issuing or acquiring of payment instruments,
- payment transactions whereby consent is provided via an information technology or electronic communication device and payment is made to an information technology or electronic communication service provider acting solely as an intermediary between the payment service users and the supplier of the goods/services,
- services for mediating invoice payments.
Not only PIs but also EMIs and banks are authorized to provide payment services under the Law. In practice, there are examples of corporations which provide e-money and payment services at the same time. For instance, mobile payment services provided by GSM operators are considered e-money services when the transaction is concluded via prepaid lines, whereas they are considered payment services when the transaction is concluded via postpaid lines.1
- Prohibited Activities
Article 10 of the Regulation lists the prohibited activities for payment service providers (i.e. EMIs, PIs and banks): (i) PIs shall not engage in any activity other than providing the payment services listed above, exchanging currency as a part of payment service and operating payment systems, and (ii) EMIs shall not engage in any activity other than the issuance of e- money, providing the payment services listed above and exchanging currency as a part of payment service and operating payment systems.
EMIs and PIs further shall not (i) serve as banks' representative, (ii) accept deposit or participation funds, and (iii) grant credits or make an installment plan for the mediated amount.
III. Conditions for Exemption from the Law
The Law brings exception for certain transactions which would not be considered as payment services and thus not be requiring a license.
As per Article 12(2) of the Law, transactions such as
- cash payments made directly without a mediator,
- payments through commercial representatives authorized for a sale-purchase transaction,
- sale and purchase of foreign exchange in cash without being linked to a payment account,
- collection and delivery of cash for non-profit organizations or for monetary aids,
- transactions regarding the instruments which can be used to purchase goods or services only in the premises of the corporation issuing the payment instrument, or within the scope of a commercial agreement executed with the corporation issuing the payment instrument within a limited network of service providers, or for a limited good or service, and
- withdrawal of cash from ATM machines operated by institutions that does not provide payment services
- will fall outside the scope of Law.
This being said, neither the Regulation nor the Communiqué contains any language or clarification as to the exemptions under the Law which would allow providers to substantiate their position regarding the exemption.
In addition to the foregoing, the Turkish regulator, as the European Commission did the very same way for the E-Money Directive 2009/110/EC ("Directive"), confirms that prepaid instruments, used only in the store network of a corporation issuing e-money, used for the purchase of a specific product or service group, or used, as a result of an agreement, only in a specific service network, would fall outside the scope of the Law (Article 18(5) of the Law). However, it might be safe to state that by comparison with the Directive, the Law and the secondary legislation fall short on specifically drawing lines between the scope of Law and the exemptions thereof. As a consequence, while there is a wide range of payment and e-money service providers in practice, engaging in various payment activities, for some providers their stance before the Law is still uncertain. For instance, for online hosting providers allowing take-out orders or issuers of meal and/or ready-to-consume service vouchers, it is not clear whether their services will benefit from the exemptions or be considered payment services pursuant to the Law, given the vague language on the concept of "limited network" which allows an exemption from the Law. Meanwhile, the Directive prevents potential confusions and explicitly excludes store cards, petrol cards, membership cards, public transport cards, meal vouchers or vouchers for services from its scope2, which might also be acknowledged in Turkey as well, through practice and time, given the tendency of the regulator to absorb EU practices for this specific regime.
IV. Requirements to be Fulfilled until June 27th, 2015
As explained above, Provisional Article 2 of the Law obliges PIs and EMIs established under the Law to apply to the BRSA and obtain the necessary authorizations and render themselves compliant with the Law until June 27th, 2015.
Terms regarding their operation permits are specified under Article 8 of the Regulation, which firstly lists the documents required for submission to the BRSA for operating license applications, and then specifies, in sub-article 4 that absent documents or information can be renewed and resubmitted to the BRSA within 6 (six) months following the receipt of the BRSA's notice. The operating license shall be rendered valid upon publication of the BRSA's decision on the Official Gazette (sub-article 5 of the Regulation). (To this date, 5 entities have received their licenses from the Central Bank to operate as payment system operators or securities settlement system operators; none amongst these have licenses to operate as EMI or PI.)
Apart from the obligation to receive an operating license, EMIs and PIs should also fulfill the criteria displayed in the chart below:
Sanctions for operating without license are severe: Real persons and officers of legal entities acting as a system operator, PI or EMI without an operating license will face an imprisonment sentence from 1 (one) year up to 3 (three) years and a judicial monetary fine of up to 5,000 (five thousand) days.
The Law takes the matter a step further and imposes the foregoing sanctions on real persons and officers of legal entities using expressions and words, which give the impression that they are acting as a system operator, PI or EMI, on their business names, all kinds of documents, announcements and advertisements or public announcements, without actually holding an operating license.
In case these operations are performed in workplaces without license, the workplace can be shut down for a period between 2 (two) to 6 (six) months and in case of recurrence, the workplace can be shut down permanently.
Engaging in the foregoing activities after the expiration/annulment of an operating license will also be sanctioned in line with Article 28.
A year has passed after the enactment of the secondary legislation on payment and e-money systems and the countdown for compliance with the Law has nearly come to an end. Yet the regime still holds its mystery when it comes to blending practices with the regulatory framework and to this date, 5 entities have received their licenses from the Central Bank to operate as payment system operators or securities settlement system operators; none of which are licenses to operate as EMI or PI, while a considerable number of the players might hope to benefit from the exemption. Given the severe sanctions for non-compliance with the Law, stretching to imprisonment for officers, for those who failed to fulfill the foregoing liabilities in due time, it remains yet to be seen the BRSA's actions in return.
1 Report of Central Bank Of Turkish Republic, "Payment Systems Payment Systems in Turkey", 2014, pg. 20. Full report can be found at: http://www.tcmb.gov.tr/wps/wcm/connect/a28ff0bd-1e9a-42be-8f7d-3249a1b3cf1c/OdemeSistemleri.pdf?MOD=AJPERES
2 Directive 2009/110/EC, Recital 5
Author: Gönenç Gürkaynak, ELIG Attorneys-at-Law, Çitlenbik Sok. No: 12, Beşiktaş, Istanbul, Turkey. Tel: 90-212-327-1724. E-mail: firstname.lastname@example.org
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.