Crypto Asset Regulations Come into Force
Law No. 7518 on the Amendment of the Capital Markets Law No. 7518 (“Amendment Law”), which introduces regulations on crypto assets to the Capital Markets Law No. 6362 (“Law”), entered into force after being published in the Official Gazette dated July 2, 2024 and numbered 32590. With the said regulation, crypto asset service providers operating or to operate in Türkiye have been brought under the regulation and supervision of the Capital Markets Board (“Board”) within the scope of the Law. The full text of the Amendment Law is available here.
On the same date, the Board also published the Announcement on Crypto Asset Service Providers (“Announcement”) on its website. The Announcement outlines the principles and application documents required regarding the operating license application process to be made to the Board by crypto asset service providers that are currently operating and crypto asset service providers that shall start operating. The full text of the Announcement is available here.
A. HIGHLIGHTS OF THE AMENDMENT LAW
1. Key Concepts Defined and Given Legal Ground
The Amending Law defines the concepts of crypto asset, crypto asset trading platform (“Platform”), crypto asset custody service and crypto asset service provider (“Service Provider”). According to the Amendment Law;
a) “crypto asset” means intangible assets that can be created and stored virtually using distributed ledger technology or a similar technology, distributed over digital networks, and can express value or rights;
b) “platform” means the organizations where one or more of the crypto asset trading, initial sale or distribution, clearing, settlement, transfer, custody and other transactions required by them and other transactions that may be determined are carried out
c) “crypto asset custody service” means the custody and management of the crypto assets of platform customers or the private keys that provide the right to transfer from the wallet related to these assets, or other custody services to be determined by the Board,
d) “crypto asset service provider” means 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 the regulations to be made on the basis of the Amendment Law.
2. Scope of Crypto Assets Covered under the Amendment Law
It is envisaged that the Law shall not apply to crypto assets that do not provide rights specific to capital market instruments and that are not traded or initially offered on the Platforms.
However, it is clearly stated in the Amendment Law that the Board may also determine principles for the sale or distribution of crypto assets, other than crypto assets that provide rights specific to capital market instruments, which are created through the development of distributed ledger technology or a similar technological infrastructure and whose value cannot be separated from this technology, on platforms without being subject to the provisions of the Law regarding capital market instruments.
3. Principles Governing Platforms, Custody Services and Service Providers
Under the Amendment Law;
a) Service Providers must obtain authorization from the Board for their establishment and commencement of operations. Furthermore, Service Providers shall exclusively carry out activities to be determined by the Board.
b) The Board is authorized to make determinations regarding the establishment and commencement of operations of Platforms, as well as their activities, shareholders, capital obligations, information systems and technological infrastructure, share transfers and other similar issues.
c) Customers' cash and crypto assets must be separated from the assets of Service Providers and cannot be subject to seizure, pledge, or precautionary measures due to the liabilities of Service Providers.
d) Pledge agreements involving crypto assets shall not be subject to the Law No. 6750 on Movable Pledge in Commercial Transactions.
e) The obligation of Platforms to store the crypto assets of their customers in their own wallets has been regulated, and it has become mandatory to keep the records regarding the wallets where the crypto asset transfers of the customers are made and the bank accounts where the cash transfers are made in a traceable manner by authorized institutions.
f) It is regulated that the agreements signed between the Service Providers and the customers may be in written form or by distance through the use of remote communication tools or by means of an information or electronic communication device, which the Board determines that the written form may be substituted, whether distance or not, and that they shall be executed through an information or electronic communication device, and that they may be established through methods that allow the verification of the customer identity, and the procedures and principles regarding this shall be determined by the Board.
g) One percent of all revenues of the Platforms, excluding interest income, from the year in which they obtain an operating license, shall be paid to the Board and one percent shall be paid to the TÜBİTAK budget to be used in the development of blockchain and related information technologies until the end of May of the relevant year and recorded as income.
h) It was regulated that the activities and promotions carried out by Platforms residing abroad for residents in Türkiye shall be deemed as unauthorized crypto asset service provision and Platforms residing abroad are obliged to obtain permission from the Board in accordance with the provisions of the Law in order to carry out activities for residents in Türkiye.
i) Service Providers shall be liable for damages arising from their unlawful activities, default in their delivery obligations, or damages caused by cyber-attacks, technical failures, operational errors or misconduct arising from the members of the Service Providers, and when there is no possibility of compensation from the Service Providers, the members of the Service Providers will be held liable for the damages, and if they are real persons, a bankruptcy decision may be issued against them upon the request of the Board.
j) In terms of the measures to be applied for the unlawful activities and transactions of the Service Providers, unauthorized crypto asset service provider activities and announcements, advertisements and disclosures regarding these activities, the measures determined for the unlawful activities or transactions of capital market institutions, unauthorized capital market activities and unlawful announcements, advertisements and disclosures will be applied. At the same time, the Information and Communication Technologies Authority will block access to the website upon the Board's decision to block access or remove the content regarding the advertisements, advertisements and announcements made on the internet in violation of the principles determined by the Board.
B. PERMISSION TO OPERATE FOR PLATFORMS THAT CONTINUE TO OPERATE
Under the first paragraph of the temporary Article 11 of the Amendment Law, Service Providers operational as of July 2, 2024, must submit a written statement to the Board by August 2, 2024, declaring that they will either:
i. Apply for an activity permit in compliance with the secondary regulations to be issued by the Board, or
ii. Decide to liquidate their operations within three months without harming customer rights and interests and refrain from accepting new customers during the liquidation process.
The information and documents to be submitted to the Board for this purpose by Service Providers who will decide to liquidate, Service Providers who wish to continue their activities, and new Service Providers who wish to start operating after July 2, 2024 are explained by the Board in the Announcement.
Until August 2, 2024, activities carried out without an application to the Board will be considered as unauthorized crypto asset service provision activities and the relevant persons may be subject to action pursuant to the provisions of Articles 99/A and 109/A of the Law.
Provisional Article 11/1 also stipulates that Service Providers notifying the Board that they will be liquidated must take the liquidation decision until October 2, 2024 at the latest and announce this situation on their websites and notify their customers via electronic mail, text message, telephone and similar communication tools.
The fourth and fifth paragraphs of Provisional Article 11 include transitional provisions for Service Providers located abroad and ATMs and similar devices related to crypto assets. Accordingly, it is obligatory to terminate the activities of Service Providers abroad and ATMs and similar devices that enable the cash conversion or transfer of crypto assets in Türkiye until October 2, 2024 at the latest. Articles 99/A and 109/A of the Law on unauthorized crypto asset service provider operations shall apply to those who continue to operate after this date and to those who enable such activities.
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On the same date, the Board also published the Announcement on Crypto Asset Service Providers (“Announcement”) on its website. The Announcement outlines the principles and application documents required regarding the operating license application process to be made to the Board by crypto asset service providers that are currently operating and crypto asset service providers that shall start operating. The full text of the Announcement is available here.
A. HIGHLIGHTS OF THE AMENDMENT LAW
1. Key Concepts Defined and Given Legal Ground
The Amending Law defines the concepts of crypto asset, crypto asset trading platform (“Platform”), crypto asset custody service and crypto asset service provider (“Service Provider”). According to the Amendment Law;
a) “crypto asset” means intangible assets that can be created and stored virtually using distributed ledger technology or a similar technology, distributed over digital networks, and can express value or rights;
b) “platform” means the organizations where one or more of the crypto asset trading, initial sale or distribution, clearing, settlement, transfer, custody and other transactions required by them and other transactions that may be determined are carried out
c) “crypto asset custody service” means the custody and management of the crypto assets of platform customers or the private keys that provide the right to transfer from the wallet related to these assets, or other custody services to be determined by the Board,
d) “crypto asset service provider” means 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 the regulations to be made on the basis of the Amendment Law.
2. Scope of Crypto Assets Covered under the Amendment Law
It is envisaged that the Law shall not apply to crypto assets that do not provide rights specific to capital market instruments and that are not traded or initially offered on the Platforms.
However, it is clearly stated in the Amendment Law that the Board may also determine principles for the sale or distribution of crypto assets, other than crypto assets that provide rights specific to capital market instruments, which are created through the development of distributed ledger technology or a similar technological infrastructure and whose value cannot be separated from this technology, on platforms without being subject to the provisions of the Law regarding capital market instruments.
3. Principles Governing Platforms, Custody Services and Service Providers
Under the Amendment Law;
a) Service Providers must obtain authorization from the Board for their establishment and commencement of operations. Furthermore, Service Providers shall exclusively carry out activities to be determined by the Board.
b) The Board is authorized to make determinations regarding the establishment and commencement of operations of Platforms, as well as their activities, shareholders, capital obligations, information systems and technological infrastructure, share transfers and other similar issues.
c) Customers' cash and crypto assets must be separated from the assets of Service Providers and cannot be subject to seizure, pledge, or precautionary measures due to the liabilities of Service Providers.
d) Pledge agreements involving crypto assets shall not be subject to the Law No. 6750 on Movable Pledge in Commercial Transactions.
e) The obligation of Platforms to store the crypto assets of their customers in their own wallets has been regulated, and it has become mandatory to keep the records regarding the wallets where the crypto asset transfers of the customers are made and the bank accounts where the cash transfers are made in a traceable manner by authorized institutions.
f) It is regulated that the agreements signed between the Service Providers and the customers may be in written form or by distance through the use of remote communication tools or by means of an information or electronic communication device, which the Board determines that the written form may be substituted, whether distance or not, and that they shall be executed through an information or electronic communication device, and that they may be established through methods that allow the verification of the customer identity, and the procedures and principles regarding this shall be determined by the Board.
g) One percent of all revenues of the Platforms, excluding interest income, from the year in which they obtain an operating license, shall be paid to the Board and one percent shall be paid to the TÜBİTAK budget to be used in the development of blockchain and related information technologies until the end of May of the relevant year and recorded as income.
h) It was regulated that the activities and promotions carried out by Platforms residing abroad for residents in Türkiye shall be deemed as unauthorized crypto asset service provision and Platforms residing abroad are obliged to obtain permission from the Board in accordance with the provisions of the Law in order to carry out activities for residents in Türkiye.
i) Service Providers shall be liable for damages arising from their unlawful activities, default in their delivery obligations, or damages caused by cyber-attacks, technical failures, operational errors or misconduct arising from the members of the Service Providers, and when there is no possibility of compensation from the Service Providers, the members of the Service Providers will be held liable for the damages, and if they are real persons, a bankruptcy decision may be issued against them upon the request of the Board.
j) In terms of the measures to be applied for the unlawful activities and transactions of the Service Providers, unauthorized crypto asset service provider activities and announcements, advertisements and disclosures regarding these activities, the measures determined for the unlawful activities or transactions of capital market institutions, unauthorized capital market activities and unlawful announcements, advertisements and disclosures will be applied. At the same time, the Information and Communication Technologies Authority will block access to the website upon the Board's decision to block access or remove the content regarding the advertisements, advertisements and announcements made on the internet in violation of the principles determined by the Board.
B. PERMISSION TO OPERATE FOR PLATFORMS THAT CONTINUE TO OPERATE
Under the first paragraph of the temporary Article 11 of the Amendment Law, Service Providers operational as of July 2, 2024, must submit a written statement to the Board by August 2, 2024, declaring that they will either:
i. Apply for an activity permit in compliance with the secondary regulations to be issued by the Board, or
ii. Decide to liquidate their operations within three months without harming customer rights and interests and refrain from accepting new customers during the liquidation process.
The information and documents to be submitted to the Board for this purpose by Service Providers who will decide to liquidate, Service Providers who wish to continue their activities, and new Service Providers who wish to start operating after July 2, 2024 are explained by the Board in the Announcement.
Until August 2, 2024, activities carried out without an application to the Board will be considered as unauthorized crypto asset service provision activities and the relevant persons may be subject to action pursuant to the provisions of Articles 99/A and 109/A of the Law.
Provisional Article 11/1 also stipulates that Service Providers notifying the Board that they will be liquidated must take the liquidation decision until October 2, 2024 at the latest and announce this situation on their websites and notify their customers via electronic mail, text message, telephone and similar communication tools.
The fourth and fifth paragraphs of Provisional Article 11 include transitional provisions for Service Providers located abroad and ATMs and similar devices related to crypto assets. Accordingly, it is obligatory to terminate the activities of Service Providers abroad and ATMs and similar devices that enable the cash conversion or transfer of crypto assets in Türkiye until October 2, 2024 at the latest. Articles 99/A and 109/A of the Law on unauthorized crypto asset service provider operations shall apply to those who continue to operate after this date and to those who enable such activities.
For more information and support, please contact us at info@lbfpartners.com.
LBF Partners Law Firm
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