Crypto assets law: amendments introduced to the capital markets law

Law No 7518 on Amendment of Capital Markets Law (the “Amendment Law”) has been published in the Official Gazette dated 2 July 2024 and numbered 32590, and has entered into force on the same date. With the Amendment Law, the long-awaited provisions on crypto assets has been introduced to the Capital Markets Law No 6362 (the “CML”), with the following headlines essentially focusing on crypto asset service providers: 

• Licencing process for crypto asset service providers 

• Share transfers, shareholders and representatives 

• IT-related requirements 

• Customer agreements, operations, wallets and treatment of crypto assets 

• Administrative measures and liability regime  

You may find below a detailed summary of the new regulatory framework applicable to crypto assets in Türkiye. Further supplementary legislation is expected to be enacted, among others, with respect to taxation of crypto assets. 

DEFINITIONS 

The following definitions have been included into the CML: 

• Wallet: Software, hardware, systems or applications that enable the transfer of crypto assets and the online or offline storage of these assets or the private and public keys related to these assets. 

• Crypto Asset: Intangible assets that can be created and stored electronically using distributed ledger technology or similar technology, distributed over digital networks, and can express value or rights. 

• Crypto Asset Service Provider: Platforms, crypto asset custody service providers and other entities designated to provide services in relation to crypto assets, including the initial sale or distribution of crypto assets in accordance with the regulations to be made on the basis of the CML. 

• Crypto Asset Custody Service: Storage, management or other custody services to be determined by the Capital Markets Board (the “Board”), for crypto assets of customers of the Platform or private keys that provide transfer right from a wallet pertaining to these assets. 

• Platform: Entities where one or more of crypto asset trading, initial sale or distribution, clearing, settlement, transfer, custody and other transactions can be carried out. 

• TÜBİTAK: The Scientific and Technological Research Council of Türkiye. 

CRYPTO ASSET SERVICE PROVIDERS AND CRYPTO ASSETS 

     a. Licence Requirements 

According to Article 35/B introduced to the CML, the establishment and operation of a crypto asset service provider (the “CASP”) is subject to a licence from the Board, and CASPs can only perform the activities determined by the Board. This provision should be supplemented with secondary legislation (the “Secondary Legislation”) that will be effective within six months after the Amendment Law enters into force. 

Until the Secondary Legislation enters into force, provisional Article 11 introduced to the CML states that entities already operating or wishing to operate as CASPs must apply to the Board until 2 August 2024 and must declare that it will either: 

• obtain an operation licence on the basis of documents determined by the Board and ensure that they satisfy the requirements envisaged under the CML and Secondary Legislation for crypto asset service providers; or alternatively,  

• take a liquidation decision within three months, without damaging the rights and interests of its customers, and not accept any new customers during the liquidation process. 

The relevant applications will be announced on the Board’s website. These applications will enable such entities to carry out their operations as CASPs until the Secondary Legislation enters into force. 

When the Secondary Legislation enters into force, all CASPs (including those which started operation prior to the entry into force of Secondary Legislation) will be required to apply to the Board for an operation licence. CASPs failing to apply for a licence will be deemed to be engaged in unauthorized crypto asset services. 

CASPs will be granted with an authorisation certificate in relation to the activities they are allowed to carry out. As regards banks that carry out certain crypto asset services, the affirmative opinion of the Banking Regulation and Supervision Agency will have to be sought. 

The activities of ATMs and similar electronic transaction devices located in Türkiye that allow customers to convert crypto assets into cash or cash into crypto assets and to transfer crypto assets will be terminated until 2 October 2024. 

     b. Information Systems and Technological Infrastructure Requirements 

Pursuant to Article 35/B introduced to the CML, CASPs are obliged to make the necessary arrangements, take the appropriate measures and establish the required internal control units and systems in order to securely manage their systems. In order for the Board to authorise the establishment and/or commencement of operations of a CASP, its information systems and technological infrastructures must comply with the criteria to be determined by TÜBİTAK. 

     c. Share Transfers 

As per Article 35/B introduced to the CML, the transfer of shares of the CASPs is subject to the Board’s approval. Any transfer made without the Board’s approval will not be registered in the share ledger and the registrations made in the share ledger in violation of this provision will be invalid. 

     d. Qualifications Regarding Shareholders and Board Members 

In compliance with Article 35/B introduced to the CML, the shareholders of CASPs cannot (i) go through a bankruptcy, concordat, restructuring or similar proceedings, (ii) be a shareholder of a bank or another financial institution whose operation licence has been cancelled, (iii) have committed or be convicted of a crime stated in the relevant provision, (iv) be prohibited from trading in stock exchanges as per Article 101 of the CML and the shareholders must have sufficient financial strength and honesty and reputation for their position and they should have a transparent and open shareholding structure. 

The members of boards of directors and other representatives of CAPSs must have the same qualifications required for the shareholders above, except for financial strength. 

The real persons who have the right to receive more than half of the distributable profit of a CASP alone, or who have the right to elect or nominate more than half of the members of the board of directors in accordance with the articles of association of the company must have the same qualifications as required for shareholders. 

Shareholders who hold, directly or indirectly, 10% or more of the share capital or voting rights of the legal entity shareholders of CASPs, or who have privileged shares entitling them to representation on the board of the legal entity shareholders of CASPs, must hold the same qualifications as required for shareholders.  

If legal entity shareholders of a CASP holding, directly or indirectly, 10% or more of the share capital or voting rights, or having privileged shares entitling them to representation on the board of the CASPs, and the shareholders of such a legal entity shareholder, lose any of the required qualifications (except for financial strength, honesty and reputation for their position) they will be required to transfer their shares to third parties bearing the relevant qualifications within six months. 

ACTIVITIES OF CRYPTO ASSET SERVICE PROVIDERS AND TRANSFER AND CUSTODY OF CRYPTO ASSETS 

     a. Customer Agreements 

Agreements between the CASPs and their customers can be concluded in writing or as a distance contract through the use of remote communication tools, or can be formed through other means which the Board deems suitable to replace the written form, performed through an information or electronic communication device and which will allow the customer’s identity to be verified. The Board has the power to determine the minimum content of such an agreement. Any contractual term that eliminates or limits the liability of CASPs towards their customers will be invalid. 

Platforms must establish internal mechanisms to effectively resolve customer objections and complaints regarding their transactions.  

CASPs must determine the identities of their customers within the scope of the Law on Prevention of Laundering Proceeds of Crime No 5549 and other relevant legislation provisions. 

The relationship between the Platforms and their customers and any disputes arising between the parties due to the transactions carried out on the Platforms are subject to general provisions and crypto assets are not covered by the investor compensation provisions of the CML. 

CASPs are liable for losses arising from their unlawful activities and their failure to fulfil cash payment and/or crypto asset delivery obligations. In addition, CASPs are liable for crypto asset losses caused by the operation of information systems, all kinds of cyber-attacks, acts such as information security breaches or any behaviour of personnel. However, CASPs are not liable for losses that arise from interruptions in the services provided, or in cases where orders cannot be transmitted or transactions/transfers cannot be made for a temporary period of time and similar situations, provided that the CASP is not at fault in this respect. In the event that the losses cannot be compensated from the CASP, the relevant persons associated with the CASP are liable to the extent that the damages are attributable to them. 

     b. Operation of CASPs 

The prices will be freely determined on the Platforms. 

The provisions of the CML regarding market disruptive actions will apply to any actions and transactions that cannot be explained with a reasonable and economic justification and that may disrupt the operation of the transactions on the Platform in terms of trust, openness and stability, except for transactions related to crypto assets that are considered by the Board as widely traded in foreign markets and which price is also formed on foreign markets. 

Platforms will establish a written listing procedure for determining the crypto assets that will be traded or the first sale of which will be made or distributed (or determining the trading of which crypto asset will be ceased), subject to any further rules and principles regulated by the Board in this regard. 

Platforms will determine order and transaction principles, establish the necessary surveillance system within their structure and take all kinds of preventive measures in order to ensure that transactions are carried out in a reliable, transparent, efficient, effective, stable, fair, honest and competitive manner, and to detect, prevent the recurrence of market disruptive actions and transactions. 

Platforms will detect any market disruptive actions and transactions carried out and will take necessary measures, including the restriction, suspension and closure of accounts carrying out such actions and transactions, and will report their findings to the Board. 

The CASPs will become members of the Turkish Capital Markets Association. 

     c. Wallets and Customer Accounts 

Records regarding the wallets where customers’ crypto asset transfers are made, and the accounts where fund transfers are made, will be kept by the CASPs in a secure, accessible and traceable manner. The integrity, accuracy and confidentiality of all transaction records will be ensured by the CASPs. In crypto asset transfer transactions of customers, the CASPs will comply with the requirements designated by the Board and the President of the Financial Crimes Investigation Board (e.g. information in relation to the sender and receiver in the relevant transfer messages). 

Crypto assets belonging to the customers of the platforms must be kept in the customers’ own wallets. If the customers do not want to keep their crypto assets in their own wallets, the custody service for crypto assets must be provided by authorised banks or other institutions authorised by the Board to provide crypto asset custody services, and in any case the cash belonging to the customers must be kept in banks. 

     d. Separation of Assets of Customers and CASPs 

The cash and crypto assets of the customers shall be separated from the assets of the crypto asset service providers and the records must be kept in accordance with this principle. The cash and crypto assets of customers in the custody of the CASPs cannot be seized, pledged, included in the bankruptcy estate or subject to an interim injunction due to the debts of the crypto asset service providers under any circumstances; the assets of crypto asset service providers cannot be seized, pledged, included in the bankruptcy estate or subject to interim injunction due to the debts of the customers, even if it is for public receivables. 

All kinds of administrative and judicial requests such as injunctions, attachments and similar administrative and judicial requests regarding cash and crypto assets belonging to customers must be fulfilled exclusively by CASPs. In the event that cash and crypto assets belonging to customers are seized by judicial authorities, all necessary procedures for the custody of the seized assets in the wallets established with the custody service providers will be executed by the judicial authorities. 

     e. Contribution to the Budget 

Each year, one per cent of all the revenues of the Platforms, excluding interest income from the previous year, will be paid to the budget of the Board and one per cent will be paid to the budget of TÜBİTAK. This will be done by the end of May of the relevant year, effective as of 2025 based on the income from 2024. 

MEASURES, ADMINISTRATIVE FINES, CRIMINAL AND PERSONAL LIABILITY  

     a. Applicable Measures 

Article 96 of the CML on the measures to be applied in unlawful activities or transactions of the capital markets institutions, Article 99 of the CML on the measures to be applied for unauthorised capital markets activities, and Article 100/1 of the CML on measures to be applied in unlawful announcements, advertisements and statements will all be applicable for CASPs as well. 

• Foreign platforms 

Foreign platforms are prohibited from engaging in activities for Turkish residents or offering an activity prohibited in relation to crypto assets to Turkish residents, with any such activities being deemed an unauthorised provision of crypto asset services. Therefore, the relevant foreign platforms shall cease their activities towards Turkish residents until 2 October 2024. Activities carried out by foreign platforms, such as opening a workplace in Türkiye, creating a Turkish website, engaging in promotional and marketing activities regarding the crypto asset services offered directly and/or via Turkish persons or institutions, will be considered as activities for Turkish residents. 

• Financial difficulty 

If a CASP is in financial difficulty, the Board is authorised to request the strengthening of their financial structures within an appropriate period of time (not more than three months), to directly suspend the activities of CASPs temporarily, to cancel their operation licence, or to limit or revoke the signature authorisations of managers and employees who are found to be responsible for the situation. 

• Unauthorised publications, advertisements and announcements 

Should the Board (i) receive information that any publication, advertisement and announcement regarding crypto assets has been made on the internet, or investment consultancy and/or portfolio management regarding crypto assets have been carried out on the internet in violation of the principles or prohibitions determined by the Board, or (ii) find out that the activities of CASPs have been carried out through the internet without obtaining a licence, the Board will decide to remove such content and/or block access to publications made through the internet. 

Any other publication, advertisement and announcement activities made through mediums other than internet in violation of the principles or prohibitions determined by the Board can be halted and collected by the Board. 

Additionally, Article 111 of the CML on non-provision of information and documents and preventing of supervision, Article 112 of the CML on irregularities in legal books, accounting records and financial statements and tables, Article 113 of the CML on secrecy obligation, and Article 115 of the CML on written application and special investigation procedures will all be applicable to CASPs as well. 

In cases of market disrupting actions, information misuse and market fraud by CASPs, during the investigations in respect of these cases, the Board may decide to remove the content and/or block access to publications made via the internet regarding crypto assets. 

     b. Administrative Fines 

In case of a breach of Articles 35/B and 35/C of the CML, or the regulations to be issued by the Board regarding the obligations and responsibilities of CASPs, the relevant CASP will be subject to administrative fines pursuant to Articles 103 and 105 of the CML. 

     c. Criminal Charges 

• Unauthorised CASP activities 

Individuals and representatives of legal entities that are found to be operating as CASPs without obtaining the necessary licence will be sentenced to imprisonment from three to five years and face a judicial fine varying between five thousand and ten thousand days. 

• Embezzlement through CASPs 

The chairman or other members of the board of directors of the CASPs who embezzle cash or cash substitute documents or notes, other goods or crypto assets that are entrusted to it due to its capacity as a CASP, or which it has a duty to protect, store and supervise, will be sentenced to imprisonment from eight to fourteen years, face a judicial fine of up to five thousand days, and be sentenced to compensate the CASP for the relevant losses.  

If the offence is committed by fraudulent behaviour to ensure that the embezzlement is not disclosed, the relevant person will be sentenced to imprisonment from fourteen to twenty years and face a judicial fine of up to twenty thousand days. However, the amount of the judicial fine may not be less than three times the damage suffered by the CASP and its customers. 

If the individual shareholders of a CASP whose operating licence has been revoked, who have legally or actually held the management or control of the CASP, use the resources of the CASP or its customers directly or indirectly for the benefit of themselves or others in such a way as to jeopardise the safe operation of the CASP by any means, and thereby cause losses to the CASP or its customers, this situation will also be deemed as embezzlement. Anyone who commits such an act will be sentenced to imprisonment from twelve years to twenty two years and face a judicial fine of up to twenty thousand days. However, the amount of the judicial fine may not be less than three times the damage suffered by the CASP and its customers. In addition, it may be decided that the incurred damage can be paid severally by the relevant persons. 

A special investigation procedure is foreseen for embezzlement cases regarding crypto assets. 

     d. Personal Liability 

The board members, individual shareholders and other relevant persons who are found to have committed embezzlement will be personally liable for the amounts incurred as damages to customers, and the Board may request their bankruptcy for the purposes of compensating these customers. If the embezzlement is committed for the benefit of third parties, the personal liability will also be applied to such third parties on the basis of the benefit they received. 

SUPERVISION AND AUDIT OF CASPs 

Articles 88, 89 and 90 of the CML on the supervision activities, confidentiality and secrecy will be applicable to CASPs as well. Financial audits and independent audits of information systems of CASPs will be performed by independent audit institutions included on a list announced by the Board.