The last month of 2021 was unarguably remarkable for the financial technology ("FinTech") sector.

Firstly, the decision of the Judges and Prosecutors Council on the establishment of specialized courts for cybercrimes and financial crimes was published. Following the decisions, secondary legislation for the payment services and electronic money issuance entered into force, and the Turkish Competition Authority published the sector Report on FinTech where the sector is examined thoroughly in the light of the brand-new secondary legislation. Moreover, the regulation on the operating principles of digital banks and service model banking entered into force in the same month and the sector was completely shaped after the publication of this regulation.

Within this context, the regulatory framework for the sector was determined and established through the decision, regulations, and the report complementing each other just as the rings of a chain. Hereby with this article, we aim to provide general information regarding the sectoral regulations and summarize the potential impacts of the regulations from a short-term point of view.


1- Establishment of specialized courts

The decisions dated 25 November 2021 and numbered 1229 and 1230 ("Decisions") of the First Chamber of Judges and Prosecutors Council ("Council") have been published in the Official Gazette dated 30 November 2021 and numbered 31675. The Council decided to establish specialized courts to hear the below-mentioned cases:

  1. Cases arising from the cybercrimes stipulated under the Turkish Criminal Code,
  2. Cases arising from the financial crimes stipulated under the Law on Payment and Securities Settlement Systems, Payment Services, and E-Money Institutions ("Law").

In this manner, we believe that the Council took an appropriate decision regarding the determination of the areas requiring expertise and the requirement of establishing specialized courts. Reducing the impact of cybercrimes and financial crimes recently becoming widespread and malignant depends on the effective and disincentive judgment process. At this point, it is substantial to ensure that the digital evidence collected depending on the type of the crime can be evaluated by the judges not only by the experts assigned to the cases. Therefore, the specialized courts consisting of judges having a technical background and know-how doubtlessly will take faster, effective, and disincentive decisions in the forthcoming days. As a matter of fact, the Decisions taken will lead to progress on the judicial reform and implementation of the Human Rights Action Plan.

2- Secondary legislation regarding the industry

The Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers ("Regulation on Payment Services and Electronic Money") and Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services in the Field of Payment Services Providers ("Communiqué on Information Systems of Payment Services and Electronic Money ") have been published in the Official Gazette dated 1 December 2021 and numbered 31676 and entered into force as of the publication day. Thus, the Regulation on Payment Services and Electronic Money Issuance, Payment Institutions and Electronic Money Institutions ("Abrogated Regulation") published in Official Gazette dated 7 June 2014 and numbered 29043 and Communiqué on the Management and Supervision of Information Systems of Payment Institutions and Electronic Money Institutions ("Abrogated Communiqué") have been repealed.

The Regulation on Payment Services and Electronic Money was drafted on the grounds of the Law by the Central Bank of the Republic of Turkey ("CBRT") and aims to regulate the operations of payment and electronic money institutions ("Institutions") and procedures and principles with regard to providing payment services and issuance of electronic money. Considering the provisions stipulated in this direction, it is safe to say that financial liabilities of the Institutions identified in the regulations are preferred to be increased to strengthen their financial structures. With the Regulation on Payment Services and Electronic Money, operating permit procedures are strictly regulated, amount of the minimum equity capital to be paid is increased, and the Institutions identified in the regulations are obliged to hold collateral before the CBRT. Additionally, the cooperation of the Institutions identified in the regulations with foreign institutions, the transactions allowed to be made in foreign currency and the transactions that can be carried out through branches and representatives are stipulated. In this context, it can be alleged that there are new and stricter provisions in many aspects.

Considering the scope of the Regulation on Payment Services and Electronic Money, Institutions are aimed to be more accredited. Particularly, reporting obligations in various contents to the CBRT set forth for the Institutions demonstrates that the Institutions identified in the regulations are subject to a continuous auditing mechanism. Our evaluations are presented below under the section "III - Evaluations on the Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers" where the Regulation is examined closer.

3- Report of the Turkish Competition Authority regarding the FinTech companies providing payment services

Turkish Competition Authority published the Survey Report on the Financial Technologies Providing Payment Services ("Turkish Competition Authority Report on FinTech") on 08 December 2021. Although the payment services market is subject to the CBRT regulations, the CBRT has not been given a special duty and authority to establish competition in the market or to ensure fair competition conditions under the Law or regulations drafted based on the Law. However, for instance, the Information Technologies and Communications Authority, in its capacity as a sectoral regulator, has been given a special task and authority to determine the conditions of competition in the electronic communication market under the Electronic Communications Law No. 5809. Therefore, it is obvious that the control of the competition conditions in the payment services market will not be carried out with a special duty and authority of the regulator, but within the framework of the Law No. 4054 on the Protection of Competition that authorizes the Turkish Competition Authority. In this regard, the sector Report, namely the Turkish Competition Authority Report on FinTech, drafted by the Turkish Competition Authority is a remarkable work that examines the market from the competition perspective.

The Turkish Competition Authority Report on FinTech consists of the following sections:

  1. exclusionary actions of established enterprises,
  2. regulations, and
  3. market dynamics.

The Turkish Competition Authority Report on FinTech evaluates the reasons for the emergence of FinTech sector, impacts on the sector, difficulties in the marketing of products and services faced by the players, obstacles to increase of innovation and competitive conditions in the market, exclusionary effects, and actions originating from both the market and established enterprises. Suggestions from the perspective of competition are also included for the development of the sector considering the sectoral dynamics.

It is stated that the fact that FinTech companies are highly dependent on the banking infrastructure in their activities, creates a vertical relationship between FinTech companies and the banks. In this regard, and in cases where services cannot be provided by the banks to FinTech companies, Fintech companies are not able to provide products and services they have developed to the consumers.

The Report evaluates that the market structure, in which FinTech companies receive services from the banks in the upstream market and compete with the banks in the downstream market, shows similar characteristics to markets such as telecommunication and retail.

The Turkish Competition Authority established a convergence between the telecommunication market and the payment services market and stated that each bank shall be in a dominant position, taking into account the customer data of companies providing financial services. In our opinion, this evaluation is remarkable as previously the strongest argument of the banks to refrain from executing contracts to provide infrastructure and/or services to the FinTech companies was that the banks are not obliged by the Turkish Competition Authority to execute contracts based on the low market share threshold.

4- The State Report of Presidency Finance Office regarding the FinTech ecosystem:

"The State of Fintech Ecosystem in Turkey, 2021" ("State Report") prepared under the coordination of the Finance Office of Presidency of the Republic of Turkey has been published.

State Report has been prepared to provide references to local and foreign investors, entrepreneurs, and academic literature. In the State Report, regulations adopted in financial technologies in recent years that lead up to the development of the Turkish FinTech sector are indicated in detail. The innovations that took place on a national basis and the new business models that emerged in this direction are mentioned.

It is stated that there are 70.3 million active retail digital banking users and it has been reached 1.7 million POS terminals, 52 thousand ATMs, 82.8 million credit cards, 54.4 million prepaid cards in Turkey; the contactless payment rate reached the level of 48%. It is also noted that in the ecosystem in which 520 fintech companies actively operate, more than $64 million investment was made in 2021 and FinTechs authorized in 2021 sold a total of 48 million USD worth of shares in 2021.

In addition to this, the main vision and strategy of the National FinTech Strategy Document, which is being worked on by the Presidency Finance Office, has been established. Moreover, the National FinTech Strategy Document, a roadmap to provide developments in the sector, which will reveal an action plan for the FinTech ecosystem between 2022 and 2025, is predicted to be published in the first quarter of 2022.

5- Regulation on digital banking:

The Regulation on the Operating Principles of Digital Banks and Service Model Banking ("Regulation on Digital Banking") has been published in the Official Gazette dated 29 December 2021 and numbered 31704 and entered into force on 1 January 2022.

With the Regulation, the procedures and principles regarding the activities of branchless banks, which serve through electronic banking services distribution channels and the provision of banking services to financial technology companies and other businesses as a service model have been determined. In terms of digital banks, operation limitations, mandatory service continuity level, and licensing requirements are stipulated under the Regulation on Digital Banking.

Within the scope of the Regulation, digital banks are provided with the opportunity to perform all the activities that can be performed by the credit institutions, depending on whether they are deposit banks or participation banks unless otherwise stipulated under this or other secondary legislation. Moreover, digital banks are obliged to comply with the legislation that all credit institutions should comply with, in addition to this regulation.

Operation restrictions and exceptions to these restrictions are set forth for the digital banks in the Regulation on Digital Banking. One of the restrictions is that the customer portfolio of the digital banks can only consist of financial customers and small and medium sized enterprises. However, some transactions are not subject to these customer portfolio restrictions such as transactions considered as loan and conducted in the interbank markets or to operate in the monetary and capital markets. As an exception to the customer portfolio restriction, digital banks can provide loans to other banks and foreign currency loans to enterprises that are larger than medium-sized enterprises.

Digital banks are prohibited from organizing under any name and establishing any agency or a correspondent or representation office excluding the general directorate or units affiliated with the general directorate. Digital banks are required to establish at least one physical office to handle customer complaints provided that it is not used as a branch. In addition, digital banks were given the opportunity to serve their customers through the ATM networks to be established by themselves.

The service continuity percentage undertaken for internet banking and mobile banking distribution channels of digital banks cannot be lower than 99.8%

The general conditions of establishment and operating permit of digital banks are the conditions for obtaining establishment and operating permits of the banks stipulated under the Regulation on Transactions Subject to Permission and Indirect Shareholding of Banks. The minimum paid-up capital required for digital banks to obtain an operating license has been determined as one billion Turkish Liras, paid in cash and free of any collusion. It is stated that the Banking Regulatory and Supervisory Board may stipulate that the applicant must sign an information exchange agreement with the Risk Center if the applicant's controlling partners are legal entities providing technology, electronic commerce, or telecommunication services.

As per the Regulation on Digital Banking, the total unsecured consumer cash loans that can be extended to any financial customer cannot exceed four times the average monthly net revenue of the customer. In case the average monthly net income of the customer cannot be determined, the upper limit will be TRY 10,000.

Additionally, the principles of Service model banking are regulated under this regulation and the service bank will be able to provide service model banking services only to domestically localized interface providers and solely within the framework of its operating permits.

About the status of existing banks, the banks apart from the digital banks and that have already obtained an operating permit and provide services through their physical branches within the framework of their current operating permits, will not need to submit a separate application within the framework of the Regulation on Digital Banking. For the mentioned banks, the provisions of this regulation regarding digital banks will not be applied.

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Dr. Cigdem Ayozger Ongun (LinkedIn)

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