Fintech Law: Türkiye - Part 1

Introduction

Türkiye's regulatory environment concerning fintech is evolving to accommodate the developments in the fintech sector while addressing the emerging challenges and risks in the financial sector. Regulators aim to balance the development of its financial technology (fintech) sector while simultaneously ensuring regulatory oversight to maintain stability and protect consumers. The lawmakers' and the regulators' major concern for fintech regulation is localisation of systems and data. Therefore, for any fintech service subject to a licence in Türkiye, local establishment and operation in Türkiye is required. The general policy and regulatory approach in the fintech ecosystem are to ensure the establishment of a regulatory infrastructure to implement financial and information security. The essential legal and regulatory matters concerning fintech are those regarding payment services, e-money institutions and alternative funding methods. This is mainly the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (Law No. 6493), which regulates the activities and licensing of payment systems, electronic money institutions and payment institutions in Türkiye.

As regards cryptoassets, the Regulation Prohibiting Payments Through Crypto Assets (the Crypto Assets Regulation), issued by the Central Bank of the Republic of Türkiye (CBRT), which entered into force on 30 April 2021 prohibits licensed payment institutions and electronic money institutions from using cryptoassets in their operations; however, it does not introduce any regulations concerning trading platforms. Additionally, within the framework of the Regulation Amending the Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism (the MASAK Regulation), cryptoasset service providers are regarded as 'obliged parties' and will be subject to inspection by the Turkish Financial Crimes Investigation Board (MASAK).

Türkiye does not have a specific regulation addressing decentralised finance (DeFi), the general legal framework may be applicable to activities involving smart contracts and blockchain-based financial services depending on their nature.

Istanbul Finance Centre Law No. 7412 (Law No. 7412), which regulates the management and operation of the Istanbul Finance Centre (IFC), financial activities to be provided in the IFC and the incentives, deductions, exemptions and exceptions to apply to these activities, was published in the Official Gazette on 28 June 2022. Law No. 7412 aims to increase the financial competitiveness of Türkiye, strengthen integration into international financial and capital markets, develop high value-added financial products and services and promote the IFC as an international finance centre. In addition, fintech startups will be supported by the finance and technology base that is to be established in the Istanbul Finance Centre.

Although not exclusive to the fintech sector, there are tax incentives available to entities operating in the technology sector. According to Law No. 4691 on Technology Development Zones, fintech companies located in technoparks can benefit from numerous tax incentives, including exemption from corporate tax, income tax, VAT and stamp tax. Furthermore, with the Amendment Law on Technology Development Zones No. 31384, which was published in the Official Gazette dated 3 February 2021, a taxpayer whose primary place of business is located within a designated tech zone shall be exempted from the duty of paying corporate tax and income tax until 31 December 2028.

As per the Fintech Guide published by the Presidency Finance Office, there are a total of 803 fintech companies in Türkiye as of September 2023 and 18 fintech companies were established in 2023. As per the list on the website of the CBRT, there are a total of 74 accredited payment and e-money fintech companies within Türkiye as of February 2023; this number has increased in comparison to the previous year, which is a positive development for the fintech sector.

Türkiye's regulatory environment concerning fintech is evolving to accommodate the developments in the fintech sector while addressing the emerging challenges and risks in the financial sector. Regulators aim to balance the development of its financial technology (fintech) sector while simultaneously ensuring regulatory oversight to maintain stability and protect consumers. The lawmakers' and the regulators' major concern for fintech regulation is localisation of systems and data. Therefore, for any fintech service subject to a licence in Türkiye, local establishment and operation in Türkiye is required. The general policy and regulatory approach in the fintech ecosystem are to ensure the establishment of a regulatory infrastructure to implement financial and information security. The essential legal and regulatory matters concerning fintech are those regarding payment services, e-money institutions and alternative funding methods. This is mainly the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (Law No. 6493), which regulates the activities and licensing of payment systems, electronic money institutions and payment institutions in Türkiye.

As regards cryptoassets, the Regulation Prohibiting Payments Through Crypto Assets (the Crypto Assets Regulation), issued by the Central Bank of the Republic of Türkiye (CBRT), which entered into force on 30 April 2021 prohibits licensed payment institutions and electronic money institutions from using cryptoassets in their operations; however, it does not introduce any regulations concerning trading platforms. Additionally, within the framework of the Regulation Amending the Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism (the MASAK Regulation), cryptoasset service providers are regarded as 'obliged parties' and will be subject to inspection by the Turkish Financial Crimes Investigation Board (MASAK).

Türkiye does not have a specific regulation addressing decentralised finance (DeFi), the general legal framework may be applicable to activities involving smart contracts and blockchain-based financial services depending on their nature.

Istanbul Finance Centre Law No. 7412 (Law No. 7412), which regulates the management and operation of the Istanbul Finance Centre (IFC), financial activities to be provided in the IFC and the incentives, deductions, exemptions and exceptions to apply to these activities, was published in the Official Gazette on 28 June 2022. Law No. 7412 aims to increase the financial competitiveness of Türkiye, strengthen integration into international financial and capital markets, develop high value-added financial products and services and promote the IFC as an international finance centre. In addition, fintech startups will be supported by the finance and technology base that is to be established in the Istanbul Finance Centre.

Although not exclusive to the fintech sector, there are tax incentives available to entities operating in the technology sector. According to Law No. 4691 on Technology Development Zones, fintech companies located in technoparks can benefit from numerous tax incentives, including exemption from corporate tax, income tax, VAT and stamp tax. Furthermore, with the Amendment Law on Technology Development Zones No. 31384, which was published in the Official Gazette dated 3 February 2021, a taxpayer whose primary place of business is located within a designated tech zone shall be exempted from the duty of paying corporate tax and income tax until 31 December 2028.

As per the Fintech Guide published by the Presidency Finance Office, there are a total of 803 fintech companies in Türkiye as of September 2023 and 18 fintech companies were established in 2023. As per the list on the website of the CBRT, there are a total of 74 accredited payment and e-money fintech companies within Türkiye as of February 2023; this number has increased in comparison to the previous year, which is a positive development for the fintech sector.

Year in review

The Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers and the Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services in the Field of Payment Services Providers were published in the Official Gazette dated 1 December 2021, with a transition period of one year. However, the transition period has been extended to 30 June 2024. The Regulation aims to regulate the operations and services of payment and electronic money institutions more strictly in comparison to the previous Regulation.

One of the developments emphasising Türkiye's approach regarding the fintech sector is the direct inclusion of fintech companies, namely payment institutions to the FAST system in 2023, thus supporting the development and competitiveness of fintech companies among other actors.

As a major regulatory development, the CBRT published the Regulation Amending the Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers (the Amending Regulation) and the 'Communiqué Amending the Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services of Payment Service Providers in Payment Services (the Amending Communiqué) in the Official Gazette on 7 October 2023. One of the most important changes made with the Amending Regulation is the introduction of the definition of 'digital wallet.' The concept of a digital wallet has been defined for the first time in the Turkish payment systems legislation and is being subject to payment licence requirement. The Amending Regulation also introduced new provisions for remote identity verification. With the Payment Services Amendment Communiqué, a localisation condition is introduced by requiring that maximum care shall be taken to ensure that the products and services to be purchased within the scope of critical information systems and security are produced in Türkiye or that the R&D centres of the producers are located in Türkiye, and for the procurement of outsourced services, deployment of intervention teams in Türkiye by the producers and providers is determined as an important criterion.

In addition, in 2022, the Istanbul Finance Centre Law, regulating the activities to be carried out at the Istanbul Finance Centre, which is expected to provide significant investment in the financial sector in Türkiye, and the incentives, discounts, exceptions and exemptions for these activities, came into force. The secondary legislation, the Istanbul Finance Centre Regulation, was published on 7 July 2023 in the Official Gazette.

The Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers and the Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services in the Field of Payment Services Providers were published in the Official Gazette dated 1 December 2021, with a transition period of one year. However, the transition period has been extended to 30 June 2024. The Regulation aims to regulate the operations and services of payment and electronic money institutions more strictly in comparison to the previous Regulation.

One of the developments emphasising Türkiye's approach regarding the fintech sector is the direct inclusion of fintech companies, namely payment institutions to the FAST system in 2023, thus supporting the development and competitiveness of fintech companies among other actors.

As a major regulatory development, the CBRT published the Regulation Amending the Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers (the Amending Regulation) and the 'Communiqué Amending the Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services of Payment Service Providers in Payment Services (the Amending Communiqué) in the Official Gazette on 7 October 2023. One of the most important changes made with the Amending Regulation is the introduction of the definition of 'digital wallet.' The concept of a digital wallet has been defined for the first time in the Turkish payment systems legislation and is being subject to payment licence requirement. The Amending Regulation also introduced new provisions for remote identity verification. With the Payment Services Amendment Communiqué, a localisation condition is introduced by requiring that maximum care shall be taken to ensure that the products and services to be purchased within the scope of critical information systems and security are produced in Türkiye or that the R&D centres of the producers are located in Türkiye, and for the procurement of outsourced services, deployment of intervention teams in Türkiye by the producers and providers is determined as an important criterion.

In addition, in 2022, the Istanbul Finance Centre Law, regulating the activities to be carried out at the Istanbul Finance Centre, which is expected to provide significant investment in the financial sector in Türkiye, and the incentives, discounts, exceptions and exemptions for these activities, came into force. The secondary legislation, the Istanbul Finance Centre Regulation, was published on 7 July 2023 in the Official Gazette.

Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology In-Depth: Fintech Law, edition 7. For further information, please visit: https://www.lexology.com/indepth