Following the publication of the Law No. 7518 on the Amendment of the Capital Markets Law ("Law") published in the Official Gazette dated 2 July 2024, and numbered 32590, which integrates the provisions on crypto asset service providers and crypto assets into the legislation, the Capital Markets Board ("Board") continues its efforts to concretize the framework for crypto asset service providers.
July 2, 2024: Law No. 7518 Amending the Capital Markets Law was published in the Official Gazette.
July 2, 2024: The Board published its first announcement regarding the key dates and sanctions for crypto asset service providers pursuant to Provisional Article 11 of the Law.
August 5, 2024: The Board published its first announcement regarding the key dates and sanctions for crypto asset service providers pursuant to Provisional Article 11 of the Law.
August 8, 2024: The Board published its Principle Decision dated August 8, 2024 and no. 42/1259 with its Bulletin no. 2024/38, which includes the conditions for the establishment of platforms, the conditions for the founders, shareholders and managers, and the issues required for application to the Board.
The law states that those currently operating as crypto asset service providers in Turkey must apply to the Board with the necessary documents within one month, and those who will not apply for an operating license must take the decision to liquidate also within one month. Upon the expiration of the relevant periods on 2 August 2024, the Board published the temporary list of operating companies and the temporary list of those declaring liquidation in its announcement dated 5 August 2024.
The published temporary list of operating companies includes 47 organizations. However, the Board emphasized that being listed as in operation does not mean that the organizations on this list are authorized under the relevant legislation. In the same announcement, 3 organizations were included in the temporary list of those declaring liquidation.
In its Principle Decision dated 8 August 2024, numbered 42/1259, the Board emphasized that within the one-month period specified in the Provisional Article 11 of the Law, it evaluated the information and documents submitted to it, created a sector profile on fundamental issues such as the capital structures, organizations, information processing and wallet technologies, customer numbers, and custody balances of the companies, and determined the basic principles and rules that should be included in the establishment applications within this scope.
The conditions for platforms to obtain an establishment license:
- Platforms must be established as joint stock companies,
- All the shares of the company must be registered shares,
- All the shares of the company must be issued for cash,
- The minimum capital of TRY 50,000,000 must be fully paid in cash, and shareholders' equity must not be less than this amount1,
- The articles of association of the company must comply with the provisions of the Law and related regulations,
- The founders must fulfill the conditions specified in the Law and the relevant regulations,
- The trade names of the company must include the phrase "crypto asset trading platform" to indicate the services they will offer,
- The articles of association must stipulate that the subject of business is exclusively limited to one or some of these activities: crypto asset trading, initial sale or distribution, clearing, settlement, transfer, and the realization of one or more of the required custody transactions,
- The board of directors must consist of a minimum of three members,
- The shareholding structure must be transparent and open.
The founders, partners, and managers of the platforms must:
- Not be bankrupt, not have declared concordat, not have had their restructuring application approved through reconciliation, or not have a decision of postponement of bankruptcy against them,
- Not have a direct or indirect share of ten percent or more or control in the institutions operating in the monetary and capital markets, such as factoring, financial leasing, financing, savings financing, asset management, insurance, reinsurance, pension companies, and payment system operators, payment service providers whose operating licenses have been revoked excluding the bankers subject to the liquidation and the voluntary liquidation cases,
- Not have been convicted, even if pardoned, of disgraceful crimes under Turkish Criminal Code numbered 765 dated 1 March 1926 and Turkish Criminal Code numbered 5237 dated 26 September 2004 or other legislation, such as simple or qualified embezzlement, malversation, bribery, theft, fraud, forgery, breach of trust, fraudulent bankruptcy, smuggling crimes excluding the usage and consumption smuggling, namely rigging official tenders and procurements, rigging the fulfillment of obligations, obstructing, disrupting, destroying, or altering information systems, misuse of bank or credit cards, laundering of assets derived from crime, financing of terrorism, and crimes listed in Article 5 of the Law No. 7262 on the Prevention of the Financing of the Proliferation of Weapons of Mass Destruction dated 27 December 2020, or crimes against the personality of the State, crimes against the signs of sovereignty and the respectability of organs of the State, crimes against the security of the State, crimes against the constitutional order and its functioning, crimes against national defense, crimes of disclosing State secrets and crimes against State secrets and espionage, crimes against relations with foreign states, crimes under the Anti-Terrorism Law No. 3713 dated 12 April 1991, tax evasion crimes or participation in these crimes, and not have been sentenced to imprisonment for five years or more for an intentional crime or not have a finalized conviction for the crimes written in this Law,
- Not be prohibited from transactions under subparagraph (a) of the first paragraph of Article 101 of the Law,
- Have the necessary financial strength and the honesty and reputation required by the profession,
- Not be among the persons responsible for the incident that triggered a sanction on the institutions whose operating licenses have been revoked by the Board.
The conditions listed above must also be met by:
- The individuals who have the right to receive more than half of the distributable profit of the platforms alone or who have the right to be represented by selecting or nominating more than half of the members of the board of directors according to the company's articles of association,
- The founding partners who hold shares representing ten percent or more of the capital or voting rights of the legal entity or who hold privileged shares that grant the right to be represented on the board of directors even if they hold less than ten percent of the shares,
- In changes to the partnership structure after establishment, partners who hold shares representing ten percent or more of the capital or voting rights of the legal entity partners of the platforms or who hold privileged shares that grant the right to be represented on the board of directors even if they less than ten percent of the shares.
If these individuals do not meet the specified criteria, they must transfer their shares to individuals who meet them within six months. The Board will determine who and how the voting rights of these shares will be exercised within this period.
Within the scope of the Principle Decision, managers are defined as:
- Members of the board of directors,
- General manager,
- Deputy general manager,
- Regardless of their title, personnel who perform duties equivalent to the general manager and deputy general manager in terms of authority and responsibilities or who are authorized to represent the platform.
These individuals must meet the conditions set for partners, except for the financial strength condition. Additionally, the majority of the members of the board of directors must be graduates of schools that provide a 4-year undergraduate education.
What will happen next?
It is important to note that the Board will cancel the applications if the applicants do not send the Information Form specified in Annex 2 attached to the announcement dated 2 July 2024 or do not provide the documents specified in Annex 1 in full.
| Information Included in the Information Form | Documents to be Submitted by Crypto Asset Service Providers with Their Application to the Board |
Company Information:
|
Explanations and related documents regarding the information systems infrastructure used by the company. |
| Net profit/loss, income excluding interest income, equity, and total active balance sheet items for past periods | Explanations and related documents regarding the process and tools for the protection of customer assets |
| Information on subsidiaries (subsidiary name, type of activity, capital amount, and share amount) | Explanations and related documents regarding the processes for recording transactions on the blockchain system |
| Information on banks worked with, deposits, and credits | Explanations and related documents regarding integrations with other internal and external systems |
| Information on debts to other natural and legal persons other than banks, the identity of the creditors, and the type, amount, and maturity of the debt | Explanations and related documents regarding the company's operation and reporting processes |
| Explanations regarding whether the company or individuals holding more than 10% of the company's capital have had any loans from domestic or foreign banks subjected to legal proceedings in the last five years | Explanations and related documents regarding the functioning of the company's risk management processes |
| Detailed explanations about significant legal disputes currently involving the company and/or its partners | Regarding the company's custody infrastructure:
|
| Information on the company's partnership structure (partner's name/trade name, share amount, and share ratios) | |
| Information on the partnership structure of the legal entity partner (partner's name/trade name, share amount, and share ratios) | |
| Names and duty explanations of the company's board members, general manager, and deputy general managers | |
| Information on customers (number of customers and number of customers with balances) | |
| Information on personnel (information on the type and number of personnel) | |
Custody information:
|
|
Company documents:
|
In case the documents other than the mentioned ones are incomplete, the relevant companies may be added to the "List of Operating Companies" if the said deficiencies are completed and submitted to the Board within 15 business days at the latest as of the date of the request. If the documents are not submitted within the specified period or submitted documents are incomplete, the applications will be disregarded.
Companies whose applications are not processed or disregarded will be unable to carry out activities as a platform under the Law. However, they may resubmit their applications if the conditions in the Principle Decision are met.
Companies that are or will be included in the List of Operating Companies, meeting the conditions stipulated in the Principle Decision, are required to apply to the Board by 8 November 2024. These companies will be able to continue their operations until the Board's regulations on the conditions of operation enter into force.
It should be noted that obtaining the license for establishment only provides compliance with the provisions of the Law and will not be sufficient to commence operations. Companies that obtain an establishment license will need to apply to the Board to obtain an operating license, the scope of which will be determined by the Board.
It is anticipated that the legislative work and compliance activities in this area will continue at a similar pace in the following period. Considering that Provisional Article 11 of the Law states that the secondary regulations to be issued for implementing the relevant amendments will be put into effect within six months, the criteria for the licensing processes required for crypto asset service providers will be further concretized by the secondary regulations.
Originally published 15 August 2024.
Footnote
1. The amounts determined pursuant to this condition may be increased within the scope of the regulations to be issued for the operating principles.
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.
