The Central Bank of Turkish (“CBRT”) has introduced the “Regulation on the Disuse of Crypto Assets In Payments” (the “Regulation”) as published in the Official Gazette dated 16 April 2021. Please read our detailed evaluation below.
New regulation on crypto assets: Regulation on the disuse of crypto assets in payments
- The Regulation does not ban the trading of crypto assets. So, the users may continue trading crypto assets.
- The Regulation does no stipulate any specific regulatory requirements from crypto asset trading platforms.
- The reasoning of the Regulation: The CBRT provided the reasoning of the Regulation with an announcement on its website as follows:
“Crypto assets entail significant risks to the relevant parties due to the following reasons:
- they are neither subject to any regulation and supervision mechanisms nor a central regulatory authority,
- their market values can be excessively volatile,
- they may be used in illegal actions due to their anonymous structures,
- wallets can be stolen or used unlawfully without the authorization of their holders, and transactions are irrevocable.
Recently, some initiatives have emerged regarding the use of these assets in payments. It is considered that their use in payments may cause non-recoverable losses for the parties to the transactions due to the above-listed factors and they include elements that may undermine the confidence in methods and instruments used currently in payments.”
- Definition of Crypto Assets: Regulation, for the first time, provides a definition for the crypto assets under the laws of Turkey. The Regulation defines crypto assets as “intangible assets are created virtually by using distributed ledger technology or a similar technology and distributed over digital networks, but are not qualified as fiat money, registered money, electronic money, payment instrument, securities or other capital market instruments.”
It is uncertain whether this definition will be the exclusive definition for ‘crypto assets’ under Turkish law, or it is for the purposes of the Regulation only. However, it is important to note that although the definition excludes fiat money, deposit money, electronic money, payment instruments, securities or capital market instruments, it does not exclude “commodity” which brings the possibility that some types of crypto assets can be qualified as commodity.
Based on such definition, it is still unclear whether stable crypto assets will be deemed as electronic money or not.
We expect the CBRT and the Capital Market Board to bring further clarifications on this matter.
- Prohibition of Making Payments in Crypto Assets: This Regulation prohibits making payments via crypto assets whether directly or indirectly as well as any services for using crypto assets in payments.
Neither the Regulation nor the Law No. 6493 which is the basis of this Regulation define “payments”. Although the Law defines “payment transactions” as fund deposit, transfer or withdrawal activity carried out by the order of the sender or recipient, it is uncertain whether such definition of “payment transactions” covers the expression of “payments” in this Regulation.
However, it is understood that individuals will no longer be able to purchase or sell any services or products in exchange of crypto assets.
- Provision of Service Ban by Payment and Electronic Money Institutions: This Regulation prohibits payment and electronic money institutions to provide fund transfer services to any crypto asset trading, custody or issuing platforms.
It is understood that the listed payment institution and the listed electronic money cannot provide money transfer services to crypto asset exchanges and issuers.
In other words, users will no longer be able to transfer money from their accounts in the payment and electronic money institutions to their accounts in crypto asset exchanges. However, this prohibition does not apply to banks. In this way, users will be able to continue to transfer money to their accounts in crypto asset exchanges through their bank accounts.
- Business Model Development Ban for Banks and Payment and Electronic Money Institutions:
According to the Regulation, payment service providers will not be able to develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance, and will not be able to provide any services related to such business models.
This article is especially important as it concerns banks. Because, according to the article 13 of the Law No. 6493, payment service providers include payment institutions, electronic money institutions, banks and Posta ve Telgraf Teşkilatı Anonim Şirketi. With this article, it is prohibited for both payment and electronic money institutions and banks to develop business models that will use crypto assets during payment service or electronic money issuance or to provide services to these business models.
- Effective Date of Regulation: This Regulation will enter into force on 30 April 2021.
The Regulation introduces a 15-day grace period for the relevant parties to comply. This grace period may be regarded as rather short given the impact of the Regulation.