KEY POINTS TO KNOW ABOUT THE CURRENT CRYPTO LAW DRAFT
Introduction
A draft law on crypto assets (“Previous Draft”) was introduced to amend the Capital Markets Law No. 6362 (“Law”). However, as is known, this Previous Draft was prepared but did not pass into law. As a new development, the Previous Draft has taken its final form (“Final Draft”) by including similar regulations, covering different subjects, and introducing additional regulations. The Final Draft has been submitted to the Grand National Assembly of Türkiye (“TBMM”) for discussion. If approved by the TBMM, the Final Draft will become law and will be published in the Official Gazette, entering into force.
Scope of the Final Draft
A. Defined Crypto Assets
In the justification of the Final Draft, the term crypto assets is used in a very broad sense, encompassing different types. The types of crypto assets regulated by the Final Draft are as follows:
I. Securities Crypto Assets
Crypto assets that include rights specific to securities are included in this scope.
II. Electronic Money Crypto Assets
Crypto assets designed for electronic payment purposes are included in this scope.
III. Utility Crypto Assets
Crypto assets that provide access to a service or product and establish proof of ownership similar to copyright for items such as photos, videos, audio, artworks, and other similar items are included in this scope.
IV. Crypto Assets of a Nature That Develop Distributed Ledger Technology or Similar Technological Infrastructure and Whose Value Cannot Be Separated from This Technology
V. Stable and Unstable Crypto Assets
According to the justification of the Final Draft, stable and unstable crypto assets are named based on whether there is an underlying asset behind the value of the crypto assets. Those aiming to peg their value to the value of money, commodities, crypto assets, and similar assets used as reserve assets or their combinations are called stable crypto assets, while those not included in this group are called unstable crypto assets.
B. Legal Provisions Applicable to Crypto Assets
The legal status and the laws applicable to a crypto asset will be determined based on the rights or opportunities it offers to the individual. Therefore, what a crypto asset promises to the individual is of great importance, and the principle considered in determining its place in the legislation is called the “principle of independence from the instrument.”
If a crypto asset grants specific rights or opportunities to the individual, such as company partnership, this transaction will be subject to the provisions of the Law. The legal status of crypto assets will be determined by the promises they offer to individuals, indicating which legal regulations they will be subject to.
C. Definitions Provided in the Final Draft
Wallet: Software, hardware, system, or applications that enable the transfer of crypto assets and the storage of these assets or the private and public keys related to these assets, either as hot wallet or cold wallet. In other words, it is the key that provides individuals access to crypto assets.
Crypto Asset: Intangible assets that can be electronically created and stored, distributed through digital networks, and can represent value or rights using distributed ledger technology or similar technology.
Crypto Asset Service Provider: Entities that provide platforms, crypto asset custody services, and other entities designated to provide services related to crypto assets, including the initial sale or distribution of crypto assets as regulated by this Law.
Crypto Asset Custody Service: Services determined by the Capital Markets Board (“Board”) for the storage, management, or other custody services of platform customers’ crypto assets or the private keys that provide transfer rights from wallets.
Platform: Entities where one or more transactions such as crypto asset trading, initial sale or distribution, exchange, transfer, the required custody, and other determined transactions are carried out.
D. Regulation on Capital Market Instruments
Currently, capital market instruments are issued in a dematerialized form and the rights related to dematerialized capital market instruments must be tracked by the Central Registry Agency (“CRA”). The Final Draft envisions granting authority to the Board to set the principles for issuing capital market instruments as crypto assets without including them in the CRA system.
E. Crypto Asset Service Providers and Board Authorization
Firstly, it should be noted that according to the Final Draft, crypto asset service providers are required to become members of the Turkish Capital Markets Association. This aims to ensure that the sector is represented within a professional organization, facilitating communication through a single common point.
The Final Draft regulates the provisions related to crypto asset service providers and crypto assets, stipulating that service providers must obtain authorization from the Board to be established and commence operations. For authorization, service providers’ information systems and technological infrastructures must meet the criteria set by the Scientific and Technological Research Council of Turkey (“TÜBİTAK”). The continuation of Article 3 of the Final Draft outlines the principles and standards to be determined by the Board, including:
- Establishment
- Commencement of operations
- Shareholders, directors, and personnel
- Organization
- Capital and capital adequacy
- Obligations
- Information systems and technological infrastructure
- Transfer of shares
- Permissible activities
- Temporary or permanent suspension of activities
Additionally, this article regulates the qualifications required for the shareholders, board members, and/or authorized representatives of the crypto asset service providers without being a board member. You can access the Final Draft through this link.
F. Crypto Asset Service Providers and Customer Relations
The Final Draft grants authority to the Board to determine contract elements. It is mandatory to have a contract between customers and crypto asset service providers to ensure the transaction conditions and clear and specific service terms. Contracts for crypto asset trading can be established in writing, remotely, or through methods that allow for identity verification via an information or electronic communication device as determined by the Board.
Crypto asset service providers also allowed to establish contractual relationships using remote communication tools like banks and brokerage firms. Furthermore, any contract terms that eliminate or limit the liability of crypto asset service providers to customers are deemed invalid, and providers must establish internal mechanisms to resolve customer complaints and disputes.
To maintain balance within the system, platforms are required to create written procedures for the listing and delisting of crypto assets. The Board retains the authority to regulate additional principles and standards. In the principles and standards to be determined, it is envisioned that a detailed procedure will be established by incorporating technological criteria with the input of TÜBİTAK and other necessary institutions and organizations.
Crypto assets that are widely traded in international markets and priced abroad are excluded from the Law’s provisions on predatory practice. However, platforms must ensure that transactions are reliable, transparent, efficient, stable, fair, honest, and competitive.
Regulations require customer cash and crypto assets to be held separately from the service provider’s assets. Customer accounts cannot be pledged as collateral, and no liens, pledges, or similar restrictions can be placed in favor of investment firms. Additionally, to protect customer assets, they cannot be seized, pledged, or subjected to precautionary measures due to the service provider’s debts.
The Board is also granted authority to set principles and standards for investment advisory and portfolio management regarding crypto assets, as well as for the publication, notice, advertising, and all commercial communications of crypto asset trading platforms.
Finally, crypto asset service providers will need to obtain an authorization certificate indicating the activities they are permitted to conduct.
G. Sanctions for Unauthorized Capital Market Activities
In case of unauthorized capital market activities, reference is made to Article 99 of the Law. According to the relevant article, the Board is authorized to take necessary measures and make decisions regarding unauthorized capital market activities.
According to the amended third paragraph of Article 99 in the Final Draft, considering the developing technology, if there is an unauthorized capital market activity conducted via the internet without distinction between domestic and international operations, the Board is empowered to decide on the removal of content and/or the blocking of access.
H. Supervision of Service Providers and Measures and Sanctions to be Applied in Their Activities
i. Supervision
According to the Final Draft, the supervision of service providers will be governed by the provisions in the “Supervision and Measures in Capital Markets” section of Part 5 of the Law.
The Final Draft stipulates that personnel from ministries, related institutions, and other public agencies may be assigned upon the Board’s request to assist with supervision activities conducted by Board personnel or to provide technical support for those conducting supervision within the framework of their regulations, subject to the approval of these institutions.
Financial audits and independent audits of information systems will be carried out by independent audit firms listed by the Board, with additional procedures and principles determined by the Board in consultation with TÜBİTAK or other relevant institutions. To consolidate knowledge and experience in this emerging field, Board personnel and assigned personnel may accompany information systems audits at every stage in an observer capacity, without compromising the principle of auditor independence.
ii. Measures and Sanctions
In reference to the Final Draft, the relevant articles of the Law are cited, and imprisonment and administrative fines are mentioned as potential penalties regarding the measures to be implemented against service providers’ unlawful activities and transactions, unauthorized crypto asset service provision activities, and the notice, advertisements, and commercial communications related to such activities.
The Final Draft specifies the activities directed towards individuals residing in Türkiye as follows:
- Establishing business office in Türkiye by platforms based abroad
- Creating a website in Turkish
- Engaging in promotion and marketing activities related to the offered crypto asset services, either directly or through individuals or institutions residing in Türkiye
With this regulation, the Final Draft stipulates that any activity conducted by platforms based abroad towards individuals residing in Türkiye or offering a prohibited crypto asset-related activity to individuals residing in Türkiye within the scope of regulations to be made by the Board, will be considered unauthorized crypto asset service provision. Therefore, to engage in such activities, permission must be obtained from the Board in accordance with the provisions of the Law.
In the Final Draft, the following instances are regulated concerning the Board’s authority to order the removal of content and/or block access to online publications, with such orders being sent to the Access Providers Union for enforcement:
a) Information obtained indicating that notice, advertisements, or announcements have been made online in violation of the principles or prohibitions determined by the Board.
- If it is determined that such actions were carried out through other media rather than online, the Board may suspend the notice and advertisements or confiscate the notice and advertisement by unlawful documents.
b) Information obtained indicating that investment advisory and/or portfolio management services related to crypto assets are being conducted in violation of the principles determined by the Board.
c) Determination by the Board that crypto asset service provision activities are being conducted online without the necessary authorization.
In cases where it is determined that service providers are unable to fulfill their cash payment and crypto delivery obligations arising from their activities by:
- Unable to fulfill these obligations or
- Unable to fulfill these obligations in a timely manner,
OR
- Their financial structures are significantly weakening, or
- Their financial condition has deteriorated to the extent that they cannot meet their commitments,
The Board shall be authorized to carry out the following actions:
|
o To request the strengthening of their financial structures. |
o To temporarily suspend the activities of crypto asset service providers without giving any prior notice
o To revoke their operating licenses o To limit or revoke the signing authorities of managers and employees found to be responsible. |
Furthermore, the Final Draft specifies that individuals and officials of legal entities engaging in crypto asset service provision without obtaining permission from the Board shall be punished with imprisonment from three to five years and judicial fines ranging from five thousand to ten thousand days.
İ. Transition Period
Those conducting crypto asset service provision activities at the date of the Final Draft’s entry into force must apply to the Board within the periods specified in the secondary regulations to be issued by the Board and obtain an operating license. On the other hand, those who will commence their activities after the Final Draft’s entry into force are required to obtain the relevant permissions from the Board before starting their activities. Failure to comply with these obligations constitutes the crime of unauthorized service provision.
Conclusion
In conclusion, the Final Draft introduces stringent measures and regulations to ensure the legality and integrity of crypto asset service provision activities in Türkiye.
By establishing clear guidelines, the aim is to reduce illegal activities and financial instability risks. It is critically important for both existing and new service providers to comply with these regulations to ensure investor protection and maintain financial stability.
Lastly, the importance of strict penalties and strong inspection mechanisms in case of non-compliance with the provisions is emphasized.
Legal Intern Naz Torbaoğlu
Matters included in this information note are not legal advice and cannot be understood as legal advice. You can always contact us to get legal advice.
