On 16 April 2021, Turkey enacted its first regulation on crypto-assets, the Regulation on Non-Use of Crypto-Assets in Payments ("Regulation"), that will prohibit the use of crypto-assets as a means of payment.

The Regulation is an important development, as it is the first legislative initiative to legally recognize and define crypto-assets under Turkish Law. However, it should be highlighted that the Regulation does not impose a blanket ban on all activities related to cryptocurrency trading.

What is the Exact Scope of the Prohibition Introduced by the Regulation?

The Regulation prohibits the use of crypto-assets as a direct or indirect method of payment, as well as the provision of services for the use of crypto-assets directly or indirectly as payments.

In accordance with Article 4, payment service providers cannot develop or provide business models that enable crypto-assets to be used directly or indirectly for the provision of payment services or for the issuance of electronic money.

The regulation further prohibits payment and electronic money institutions from intermediating for platforms that offer trading, custody, transfer or issuance services regarding crypto-assets, or for transfers of funds from such platforms.

It is important to note that the Regulation does not introduce prohibitions on platforms that provide a forum to purchase or trade crypto-assets. In its current version the Regulation primarily prohibits the use of crypto-assets as a payment method. Furthermore, payment institutions and electronic money institutions have also been prohibited from acting as intermediaries to transfers of funds to and from platforms that offer trading, custody, transfer or issuance services relating to crypto-assets.

What About the Role of the Banks?

As banks are considered to be a "payment service provider" according to the applicable legislation in Turkey, they are to be considered within the scope of the aforementioned provision that prohibits payment service providers from developing or providing business models in which crypto-assets are used either directly or indirectly for the provision of payment services or for the issuance of electronic money.

However, in the provision detailing the prohibition on acting as intermediaries to transfers of funds, the Regulation does not make reference to the wider category of payment services providers. Instead, as such a limitation has only been introduced for payment institutions and electronic money institutions, it has been accepted that banks may continue to transfer funds to and from crypto exchanges via the method of bank transfers.

Possible Impacts of the Regulation

The Regulation does not impose a prohibition on the purchase or trading or crypto-assets. Additionally, there are no provisions detailing any form of taxation obligation or fees relating to transactions.

Therefore, it is most likely that the aim of the Central Bank of Turkey is to restrict channels and business models for users to transfer funds to crypto-asset exchanges. This may also be an indicator of any subsequent legislative efforts that may focus on further classification of different crypto-assets and more detailed measures relating to taxation.  However, in its current form, the new prohibitions may have the effect of narrowing use-cases and business models relating to crypto-assets in Turkey; therefore, posing an obstacle to possible proliferation.

An important distinction in the Regulation is that while payment institutions and electronic money institutions have been prohibited from both developing models regarding the use of crypto-assets as a method of payment and facilitating the transfer of funds to/from crypto-asset exchanges, banks have only been prohibited from developing such business models.

Conclusion

Although it was expected that legislative measures would be enacted in the area of crypto-assets, the brief and unclear nature of the Regulation has certainly fallen short of many expectations. This is primarily due to the fact that the Regulation mainly covers the prohibition on the use of crypto-assets as a method of payment and the remainder of the provisions do not provide sufficient detail. Within this scope, there are ongoing concerns as to how the Regulation will affect the local fintech ecosystem in Turkey and access to the full use-cases of crypto-assets.

The Regulation will enter into force on 30 April 2021.

You may reach the Regulation in the Official Gazette  here. (Available in Turkish only)

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.