Draft Bill on Crypto Asset Has Been Introduced to the Grand National Assembly of Turkey

The long-awaited legislation on crypto assets has been given the green light. The Law Proposal on Amendments to the Capital Markets Law No. 6362 (commonly known as the Draft Bill on Crypto Asset) was submitted to the Grand National Assembly of Turkey dated 16 May 2024.

Due to the unique structure of crypto assets, the irreversibility of transactions and the problems experienced in tracking assets had led to the need for regulation of crypto assets and crypto asset platforms. One of the most striking examples of this is the use of crypto assets belonging to customers on the platform named FTX in the USA without the permission of the customers. In the Thodex case in Turkey, as in the FTX case, the obligations to the platform users were not fulfilled and the customers were caused unjust treatment. However, the increasing number of users trading on crypto asset platforms in Turkey has led to the need to regulate these platforms, as in international cases. Therefore, it would be fair to say that the relevant regulations have been eagerly waited for a long time for various reasons.

We have compiled the important headings in the Draft Bill on Crypto Asset.

Scope

Draft Bill on Crypto Asset includes the definitions of crypto-assets, crypto-asset service providers (SP) and crypto-asset platforms; however, it primarily regulates the activities of crypto-asset platforms and the trading and transfer transactions that residents in Turkey may carry out on these platforms.

In addition, the Draft Bill on Crypto Asset states that SPs must obtain permission from the Capital Markets Board (CMB) in order to be established and operate, and that the principles and procedures to be followed will be determined by secondary regulations to be issued by the CMB.

Basic obligations of SPs

With the Draft Bill on Crypto Asset, SPs are obliged to establish an internal control unit in order to provide a secure system, and their information systems and technological infrastructures must comply with the criteria determined by The Scientific and Technological Research Council of Turkey (TUBITAK) in order to be permitted by the CMB to start their establishment/activities.

It is mandatory to sign a contract between customers and crypto asset service providers, and they are given the opportunity to conclude contracts via distance communication tools, similar to the opportunity given to financial institutions.

Authorizations of the CMB

Within the scope of the Draft Bill on Crypto Asset, the CMB is authorized to determine the principles regarding the issuance of capital market instruments as crypto assets. However, the other powers of the CMB in the proposal are as follows:

— The CMB will be able to regulate the content, amendments, fees, termination conditions, etc. of the contracts between SPs and customers, and will be able to override the conditions limiting the liability of SPs.

— SPs will be audited by independent audit firms authorized by the CMB.

— In case of unauthorized capital market activities, the CMB will be able to issue access blocking orders, which is likely to be one of the most controversial provisions.

Key obligations and key regulations for crypto asset platforms

The Draft Bill on Crypto Asset introduces a wide range of obligations for platforms that require a comprehensive compliance process. We list the main provisions below:

— In terms of the crypto assets to be traded on the platforms, the obligation to establish a written procedure for the determination of the crypto assets to be traded and the termination of their trading is introduced. Secondary regulations regarding this will be determined by the CMB.

— Platforms are obliged to establish internal mechanisms to resolve customer complaints.

— Platforms are obliged to determine the identities of customers in accordance with the Law No. 5549 on the Prevention of Laundering Proceeds of Crime and the relevant legislation.

— The draft bill clearly regulates that the assets of crypto asset platforms and the assets of users will be separate. In other words, the accounts of users will not be subject to seizure in possible enforcement proceedings against the crypto asset platform.

Sanctions regulated in the Draft Bill on Crypto Asset

The main sanctions in the Draft Bill on Crypto Asset are as follows:

— SPs are liable for damages arising from their unlawful activities or failure to fulfil their obligations. In case the damage cannot be compensated, SP members may also be liable.

— Administrative fines can be imposed on those who violate the law or CMB regulations.

— Those who provide unauthorized crypto asset services will be punished with imprisonment from 3 to 5 years and a judicial fine.

— In the case of an embezzlement offence committed by SPs, the chairman and members of the board of directors and other members may be punished with imprisonment from 8 to 14 years and a judicial fine.

— As a critical point, it is also regulated as unauthorized crypto asset service provision for platforms based abroad to carry out activities for residents in Turkey or to offer a prohibited activity.

Transitional Provisions

Following the enactment of the Draft Bill on Crypto Asset, SPs operating on the date of entry into force are obliged to apply to the CMB within one month from the effective date to make the necessary applications to obtain an operating permit or to make a liquidation decision within three months and not to accept new customers.

Those who wish to start operating after the enactment and entry into force of the draft bill are required to apply to the CMB before commencing their activities. In this context, it is stated that the applications made to the CMB will be announced on the CMB's website and the organisations that will be liquidated should announce this situation on their websites and notify their customers.

As seen, Draft Bill on Crypto Asset is a significant and critical step in terms of regulating and supervising the crypto asset market in Turkey. It is expected that with the draft bill, particularly bringing crypto asset service providers under the supervision of the CMB, regulating the obligations of the platforms, and determining the sanctions to be applied will increase the transparency and security in the markets.

You can reach the full text of the Draft Bill of Crypto Asset here (only available in Turkish).