Significant Developments Regarding Crypto Assets

The long-awaited regulation on crypto assets in Turkey (Crypto Asset Law) was submitted to the Grand National Assembly of Turkey (TBMM) on 16 May 2024 with the Draft Bill on Amendments to the Capital Markets Law. The relevant proposal was approved by the TBMM General Assembly on 26 June 2024 and published in the Official Gazette on 2 July 2024 and entered into force with transitional provisions.

You can find the full text of the Crypto Asset Law here (only available in Turkish). We have compiled the significant headings in the Crypto Asset Law below.

Scope: Crypto Asset Law 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. It is also regulated 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 Crypto Asset Law, 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 (TÜBITAK) 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 Crypto Asset Law, the CMB is authorized to determine the principles regarding the issuance of capital market instruments as crypto assets. The other powers of the CMB in the relevant regulation 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: Crypto Asset Law 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 law 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 Crypto Asset Law:

• 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 relevant legislation.

• 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.

The relevant institutions also initiated action after the Crypto Asset Law entered into force. An announcement (CMB Announcement) regarding Crypto Asset Service Providers was made by the CMB on 2 July 2024 on its official website. In the CMB Announcement, it was stated that HSs must apply to the CMB and obtain an operating permit until 2 August 2024 or decide to liquidate and not accept new customers until 2 October 2024. It is also stated that the activities of ATMs and similar devices in Turkey, which enable customers to convert their crypto assets into cash or cash into crypto assets and perform crypto asset transfers, must be terminated by 2 October 2024. It was underlined that the activities of foreign crypto asset service providers for persons in Turkey should also end on the same date. In this context, those who have been crypto asset service providers as of 2 July 2024 and intend to continue these activities must apply to the CMB in writing until 2 August 2024, together with the information, documents and explanations detailed in the application documents and information form specified in the CMB Announcement.

The application documents and information form in the CMB Announcement are available here (only available in Turkish)

Another institution that published an announcement regarding the Crypto Asset Law was TÜBİTAK, on 3 July 2024. We have compiled the highlights of this announcement below under headings.

Technical criteria for license: TÜBİTAK will determine the technical criteria that HSs that will apply for a license must have. Exchanges and custodians that meet these criteria will be able to obtain a license.

Support for innovative technologies: Blockchain technology will be specially supported and studies in this field will be encouraged. Permission can be obtained from the CMB for the sale or distribution of crypto assets produced by technology companies developing new generation blockchain. In such cases, TÜBİTAK will prepare a technical report on whether the project is in the original blockchain infrastructure.

Obtaining Opinion: Platforms will determine their own principles and guidelines regarding the listing or delisting of crypto assets. TÜBİTAK will be able to give an opinion on the minimum technical criteria to be followed when determining these principles.

Independent Audit: Licensed HSs will be audited by independent audit firms. TÜBİTAK will be able to provide opinions on the procedures and principles related to information systems during the audits and participate in the audits if requested by the CMB.

Financial Resources: Platforms will transfer 1% of their revenues excluding interest to the CMB and 1% to TÜBİTAK. This financial resource will be used to popularize blockchain technology in Turkey and to finance projects in this field.

You can reach the TÜBITAK announcement here (only available in Turkish).

The secondary regulations will enter into force within six months. It is eagerly awaited to see what impact the Crypto Asset Law will have on the sector.