Memorandum on The Communiqué on the Decree No. 32 on the Protection of the Value of the Turkish Currency numbered 2018-32/45
Since the Government of Turkey purposes to preserve and manage the value of Turkish Lira, the transactions which are carried out in foreign currency particularly by the banks and exchange offices are highly being subject to legal arrangements. The main regulation in this regard is The Communiqué on the Decree No. 32 on the Protection of the Value of the Turkish Currency numbered 2018-32/45 ("Communiqué No. 2018-32/45") regulating the matters regarding the establishment, activities and liabilities of authorized institutions, which are defined in the Decree No. 32 on the Protection of the Value of Turkish Lira as joint- stock companies holding a license to perform foreign currency transactions in accordance with the rules and procedures set forth by the Ministry of Treasury and Finance ("Ministry") ("Authorized Institutions"), by collecting them under two groups depending on their permitted activities, as Group A and Group B Authorized Institutions. Moreover, The Communiqué on the Amendment to the Communiqué on Decree No. 32 on the Protection of the Value of Turkish Currency (No: 2018-32/45) numbered 2021-32/62, 2021/32-64 and 2021/32-65 ("Amendments") incorporate a wide range of amendments with respect to Authorized Institutions on the procedures and principles regarding the subject of activity, permission and establishment, liability and sanction as well.
This article aims to present legislative aspects of Authorized Institutions set forth under the Communiqué No. 2018- 32/45 as well as the general framework of the Amendments.
Permitted Activities of Authorized Institutions within the Framework of Article 4 of the Communiqué No. 2018- 32/45
As per Article4 of the Communiqué No. 2018- 32/45 the transactions that Group A and Group B Authorized Institutions are authorized are enacted as follows:
- To buy and sell foreign currencies except for fiduciary money.
- To exchange foreign currencies with smaller or larger bills, or other foreign currencies except for fiduciary money.
- To buy foreign currency cash checks within the framework of the procedures and principles determined by the Central Bank of the Republic of Turkey.
- To buy and sell jewelry, coins and similar printed gold produced by the General Directorate of Mint and Stamp Printing House.
- Provided that the transfer order is given or the physical delivery subject to the transaction is made within the same working day; to buy and sell or exchange foreign currencies with different types of foreign currencies through banking transfers with banks, authorized institutions and customers.
Group A Authorized Institutions may also perform the following activities in addition to above:
- On the condition of obtaining an operating license from the Ministry and being a member of Borsa Istanbul, to import and export precious metals and stones, standard and non-standard unprocessed precious metals and to carry out transactions related to precious metals and stones that are ongoing in Borsa Istanbul, within the framework of the provisions of the Regulation on the Operating Principles of Precious Metals Exchange Intermediary Institutions and the Establishment of Precious Metals Intermediary Institutions published in the Official Gazette dated 21/5/2007 and numbered 26528 and relevant legislation.
- To make physical trading of 1-kilogram and above standard unprocessed gold (24 carat and above) in the form of ingots and bars.
- Provided that the transfer order is given or the physical delivery subject to the transaction is made within the same working day; to buy, sell and exchange foreign currencies with different types of foreign currencies through organizations that can perform transfers with banks, Authorized Institutions and customers.
- If permitted by the Under Secretariat of Treasury of Turkey, to buy and sell foreign currency and to carry out transactions related to it, through money machines at the head office and/or branch addresses and other places deemed appropriate.
- To buy and sell foreign currency through debit cards and prepaid cards up to 10 thousand USD without any limitation.
- To transfer foreign currency coins and bills abroad
- To carry out other activities deemed appropriate by the Under Secretariat of Treasury of Turkey.
It is worth to mention that both Group A and B Authorized Institutions cannot perform activities other than those regulated under the Communiqué No. 2018- 32/45. In parallel, Authorized Institutions are banned from using any words, phrases or signs in their trading names, business licenses, announcements and advertisements, business cards any other related items that would create an impression that they are allowed to engage in any other activities other those regulated under the mentioned Communiqué.
Although it is also regulated under the Communiqué No. 2018- 32/45 that Group A Authorized Institutions may act as a representative of electronic money institution and payment institutions, they are explicitly prohibited from being representatives of electronic money institutions and payment institutions with the recent Regulation on Payment Services, Electronic Money Issuance, and Payment Service Providers published in the Official Gazette numbered 31676, dated December 1, 2021.
Besides, the changes brought by the Amendments also prohibits Authorized Institutions from acquiring any real estate other than the workplace where they operate. Bank accounts that do not belong to the Authorized Institution cannot be used in foreign currency purchase and sale transactions, and each transaction to be carried out by Authorized Institutions must be given a unique transaction number.
Establishment Procedures of Authorized Institutions
Both Group A and B Authorized Institutions are required to receive establishment permit and activity permit from the Under Secretariat of Treasury of Turkey for their incorporation and for starting their operations. The conditions for incorporation for both Group A and Group B Authorized Institutions regulated under Article 6 of Communiqué No. 2018- 32/45 are comparatively as follows:
- Being a joint- stock company,
- Group A Authorized Institutions are required to include the phase "authorized institution" in their trading names whereas Group B Authorized Institutions are required to include "limited authorized institution".
- The paid-in capital of Group A Authorized Institutions shall not be less than 10 million Turkish Liras whereas the paid-in capital of Group B Authorized Institutions shall not be less than 5 million Turkish liras.
- For each founding partner and legal entity founding partners with ten percent or more shareholding, who reside in Turkey, and persons associated with those partners may not;
- Be bankrupt, have declared concordat or have been decided to postpone bankruptcy,
- Be convicted of crimes under the Communiqué No. 32/45.
- Be a partner in Authorized Institutions whose operating permit or branch operating permit has been canceled by the Ministry due to his activities in violation of Article 4 within the last five years or have declared false information to the Ministry.
- Have overdue debts to the tax offices within the scope of the Law No. 6183 on the Collection of Public Receivables, dated 21/7/1953.
- Shares shall be registered and issued against cash,
- The articles of association must comply with the provisions of the legislation on the Protection of the Value of Turkish Currency.
The institutions that meet the conditions stipulated under Article 6 of Communiqué No. 2018- 32/45 apply to the Under Secretariat of Treasury in order to obtain the establishment permit together with the information and documents specified in Article 7 of Communiqué No. 2018- 32/45.
Activity Permit Transactions of Authorized Institutions
As per Article 8 Communiqué No. 2018-32/45, upon the approval of establishment permit, the institutions are required to complete the establishment procedures within 90 days from the date of receiving establishment permit and apply to the Under Secretariat of Treasury for the activity permit providing related documents stipulated under Article 9 of Communiqué No. 2018- 32/45. As a result of the examination made by the Under Secretariat of Treasury, the institutions whose conditions are found suitable will be granted an operating license and a certificate of "Authorized Institution Activity Permit" will be issued on behalf of the company. Authorized Institutions are obliged to send the attendance report to the Under Secretariat of Treasury within 90 days from the date of the activity permit, which will be taken from the relevant tax offices, indicating that the activity has started at the address where the permission was obtained. Authorized Institutions are obliged to notify the Under Secretariat of Treasury that their websites have been opened and that the full address of their headquarters has been added to the official website before obtaining an operating permit. In addition to above, Authorized Institutions are required to have a functioning camera and video recording system installed within the framework of the procedures and principles determined by the Ministry, and to keep the records for at least 1 year from the date of recording.
Also with the Amendments, Authorized Institutions that have been granted an operating license by the Under Secretariat of Treasury which are already in operation as of 12 October 2021 are obliged to increase their capitals to the new minimum capital(The paid-in capital of Group A Authorized Institutions shall not be less than 10 million Turkish Liras whereas the paid-in capital of Group B Authorized Institutions shall not be less than 5 million Turkish liras) until 31 December 2022. An additional period of 90 days might be given to Authorized Institutions, however, if they do not fulfil this obligation at the end of this period, the operating licenses of the Authorized Institutions will be cancelled without any further warning.
The transition from Group A to Group B or transition from Group B to Group A Authorized Institutions that have received a license to operate from the Ministry is subject to the permission of the Ministry.
Differences Regarding Non-Residents
In accordance with Article 10 of Communiqué No. 32/45, establishment procedures of Authorized Institutions under Article 7 may apply to the persons residing abroad by analogy. In such a case, the documents to be obtained from abroad should be approved by the competent authorities of the relevant country and the consulate of Turkey in that country or in accordance with the provisions of the "Convention on the Abolition of the Requirement for Certification of Foreign Official Documents, which was prepared within the framework of The Hague Conference on Private International Law and approved by Law No. 3028 of 20/6/1984", and notarized translations of the documents should be attached to the application. Documents to be requested from foreign natural and legal persons should be recorded in the country where these persons are resident, however, in the event that those documents cannot be provided due to the absence of such authority or recording system, this situation must be certified to the Ministry with a document to be obtained from the competent authorities of the relevant country.
It is obligatory to have Group A and Group B Authorized Institutions licenses in order to provide the services described in detail above within the borders of Turkey. Pursuant to the 'Decision No. 32 on the Protection of the Value of Turkish Currency', foreign exchange cannot be traded in any workplaces that do not have these licenses, and the authority to transact in foreign currency belongs exclusively to the institutions authorized by the provisions of the legislation described above. In addition, it is prohibited as a rule to make transactions in foreign currency within the borders of Turkey, and there are very strict exceptions. In addition, while it is not possible to buy and sell foreign currency in workplaces that do not have the license described above, if it is determined that foreign currency transactions are made without authorization, there may be a risk of stopping the activities in the workplace for one to six months, and in case of repetition, permanently. With all these explanations, although the establishment of Group A and Group B Authorized Institutions in Turkey seems to be a difficult and costly procedure, its attractiveness for investment is increasing day by day as a business line with exclusive transaction authorization has been created.
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.