A draft bill ("Draft Bill") that aims to amend the Capital Markets Law (the "CML") to set the legal framework regarding crypto assets, which are one of the hot topics on Turkey's agenda, has been put on the table in the Grand National Assembly of Turkey.
Some major changes provided by the Draft Bill are described below:
The Regulation Prohibiting Payments With Crypto Assets defined crypto assets for the purposes of prohibiting payments with these assets. Please see here for our client alert on this regulation.
In the Draft Bill, the concepts of crypto wallet, crypto asset, crypto asset trading platform ("Platform"), crypto asset custody service and crypto asset service provider are defined for general purposes in Turkish laws for the first time.
Accordingly, "crypto asset" means an intangible asset representing a value or right that can be created and stored virtually through distributed ledger technology or any other similar technology and that can be distributed over digital networks.
Principles for crypto asset trading transactions and crypto asset service providers
- Platforms conducting crypto asset trading will be subject to a license to be issued by the Capital Markets Board of Turkey (the "CMB") for their foundation and operation.
- The CMB will be authorized to issue secondary legislation in relation to the designation of crypto assets to be traded on the Platforms and to decide on their termination and disposal.
- Crypto asset custody services will be provided only by banks or other entities licensed by the CMB and deemed appropriate by the Banking Regulatory and Supervisory Authority (BRSA). The customers' cash will be held in Turkish bank accounts.
- Shareholders, members of the board of directors and representatives of the Platforms will be obliged to meet the conditions set forth in the Draft Bill.
- As per the Draft Bill, "crypto asset service providers" ("CASP") means crypto asset trading platforms, crypto asset custody service providers and any other entity designated to provide services relating to the crypto assets. In this respect, customers' crypto assets and cash will be separated from the relevant CASP's assets. Any asset of the customer will not be subject to any attachment, pledge or interim measure, or be incorporated in the bankruptcy estate of the CASP, and vice versa.
- Crypto asset trading contracts between Platforms and their customers shall be concluded in writing or by way of distant contract. The applicable principles and procedures will be determined by the CMB.
- The CASP will be held primarily liable for damages arising from its unlawful activities, its default in delivery obligations, cyberattacks, technical faults, operational mistakes or any damage due to the abuse of the CASP's personnel. In cases where the relevant CASP fails to indemnify such damages, the relevant CASP personnel will be held liable to the extent that such damages are attributable to them. Furthermore, real persons deemed liable for such damages can be declared bankrupt upon the request of the CMB. In this respect, the Draft Bill provides a broad liability regime that protects the investors' rights.
- Platforms will pay to the CMB a fee at a rate to be determined by the CMB for each calendar year, which cannot exceed 10% of their total income, excluding interest income, starting from the year they received their license.
- Capital markets instruments will be eligible to be issued in the form of crypto assets.
Principles for Platform customers
- Turkish residents can trade crypto assets (including transactions made via offshore entities) only through entities licensed by the CMB. The CMB is entitled to grant exceptions to this rule for crypto asset sell-off transactions.
- Customers will be authorized to transfer their crypto assets held by Platforms only to other Platforms. As the Platforms are expected to operate on a closed-loop basis, no transfer may be made from Platforms to personal crypto wallets.
Supervision of crypto asset transactions and sanctions
- CASPs will be subject to the supervision of the CMB in terms of compliance with the relevant CML provisions.
- Real persons and the personnel of legal persons who conduct unauthorized CASP activities will be subject to imprisonment for three to five years and a judicial fine of up to TRY 1 million.
- Customers that trade crypto assets on unauthorized platforms will be subject to an administrative fine in the amount of the relevant transaction, in each case not less than TRY 20,000. Customers that open an account on an unauthorized platform will be subject to an administrative fine of TRY 20,000.
- Upon the request of the CMB, the Information Technology and Communication Authority will be entitled to block access to websites on which announcements, advertisements and notices contrary to the principles designated by the CMB are displayed.
- Unauthorized CASP activities will be deemed to be under the scope of crimes committed through internet broadcasting under the Law No. 5651. Accordingly, contents relating to such activities can be removed, and access to the relevant websites or contents can be blocked.
- Active Platforms can continue to operate without having a license until the secondary legislation is issued by the CMB. No other Platforms can be founded and no existing ones can start operating before the secondary legislation becomes effective.
- After the secondary legislation comes into force, Platforms will submit their applications to the CMB within a period to be designated by the CMB. Platforms who fail to apply will be obliged to cease their crypto asset trading activities.
- Turkish residents that have accounts in offshore entities must liquidate their accounts within six months from the effective date of the Draft Bill. Transfers from unauthorized crypto wallets to authorized wallets must be completed within six months from the date of the first operation license to be granted by the CMB.
While the Draft Bill regulates crypto assets within the CML, it does not qualify the crypto assets as "capital markets instruments." Accordingly, crypto assets will be subject to a legal regime different from that of capital markets instruments.
While the Draft Bill provides an investor protective CASP liability regime, it also bans trading in offshore markets without the supervision of the CMB, by virtue of imposing administrative and judicial sanctions.
In this respect, a "closed loop" approach is explicitly adopted under the Draft Bill to track the crypto trading.
Lastly, the Draft Bill authorizes the CMB to issue secondary legislation. Hence, the approach of the CMB while enacting such secondary legislation and the reaction of the crypto asset market to such legislation should be monitored closely.
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.