Turkey, the largest crypto market in Europe and the 4th largest in the world has officially amended its Capital Markets Law to cover the issues concerning crypto asset service providers.

Crypto asset service providers will be licensed and enjoy a crypto friendly, tech-savvy advanced financial market. Here is what you need to know in nine bullet points:

1. Licensing Requirements and Levies

The Amendments introduce licensing requirements for crypto asset service providers. Another crucial aspect is the requirement for service providers to pay 1% of their income as levies to the Capital Markets Board (“Board”) and 1% of their income to the Scientific and Technological Research Council of Turkey (TÜBİTAK).

2. Targeted Service Providers

The Amendments primarily target service providers such as exchanges and custodial wallets.
Each type of service provider will have specific licensing conditions and requirements, detailed in regulations issued six months after the enactment of the Amendments. These regulations may govern various aspects, including establishment conditions, shareholder requirements, organizational structure, and technological infrastructure.

3. Transition Period for Existing Providers

Providers operating in Turkey must apply to the Board within one month and commit to obtain a license to continue their operations. They must submit the required documents and ensure that they will comply with the conditions set out in the secondary regulations.

4. Capital Markets Board’s Role

The Board is entitled to stipulate the procedures and principles for trading, initial sale or distribution, exchange, transfer, and custody of Crypto Assets. This includes guidelines for investment advisory and portfolio management services for Crypto Assets.

Board may legally evaluate the category of a Crypto Asset as to whether it is security.

The Board is authorized to establish rules in unregulated matters and make particular decisions where practical guidance is needed.

5. Issuing Capital Market Instruments as Crypto Assets

The Amendments allow the issuance of capital market instruments as Crypto Assets without requiring their registration in the Central Securities Depository (MKK) system.

Previously, the Capital Markets Law required the MKK to track all capital market instruments. The new provision allows security tokens to be issued through electronic platforms.

The Board may also require the integration of these electronic records and the MKK system to provide comprehensive oversight and coordination.

6. Requirements for Shareholders and Board Members

The Amendments set forth the minimum requirements for shareholders of Crypto Asset Service Providers to ensure their financial good standing, sound background and integrity, similar to regulations governing other financial institutions.

Shareholders must meet several conditions, including not being bankrupt and undergoing reorganization processes. They also must not have significant ownership stakes in certain financial companies whose operating licenses have been revoked. Additionally, they must not be convicted of certain crimes or be under trading bans for market abuse or insider trading.

If a shareholder is a legal entity, its ownership structure must be transparent. The minimum requirements will also apply to individuals holding significant or privileged shares in such legal entity shareholders.

Board members and authorized representatives must also meet all minimum requirements except for the financial strength requirement.

7. Separate Customer Accounts

The Service Providers must hold the customers’ funds in banks. Customers’ cash and Crypto Assets must be kept separate from the Service Providers’ assets. Regardless of the circumstances, customers’ cash and Crypto Assets cannot be seized, included in bankruptcy, or subject to precautionary measures due to the Service Providers’ debts.

The Amendments also require Service Providers to conduct audits of their financial and information systems by independent audit firms listed by the Board.

8. Custodial Wallet Providers

The definition of Crypto Asset Service Provider includes organizations that provide crypto asset custody services.

The Amendments highlight that customers should prioritize holding their crypto assets in their own wallets, such as self-custody or cold wallets. If customers prefer not to store their crypto assets in their own wallets, custody services may only be provided by (i) banks authorized by the Board and deemed suitable by the Banking Regulation and Supervision Board (BDDK) or (ii) entities authorized by the Board to provide crypto asset custody services.

9. Non-Compliance and Measures

Service Providers failing to meet the obligations may face criminal or civil sanctions under the Amendments.

Service Providers are responsible for damages caused by illegal activities and failure to fulfill cash payment or crypto asset delivery obligations. If damages cannot be compensated or it is evident that compensation is not possible, the responsible individuals within the organization may be held liable.

If providers conduct unauthorized capital market activities or violate other regulations through the Internet, the Capital Markets Board may restrict access to their platforms.

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