The need for legal regulation regarding crypto assets has been
discussed for a considerable time. With the amendments made by Law
no. 7518 (the “Law“) introduced to the
Law on Capital Markets no. 6362, published in the Official Gazette
numbered 32590 dated July 2, 2024, a comprehensive legal basis for
crypto assets has been established within the Turkish legal
framework for the first time. The Law has authorized the Capital
Markets Board (the “Board“) for drafting
secondary regulations in various aspects. Accordingly, the Board
has taken some principle decisions following the entry date of the
Law, which has clarified and substantiated the scope of the legal
framework outlined by the Law.
Scope of the Law
The Law defines technical terms related to crypto assets and
specifies the procedures and principles that crypto asset service
providers must follow, and specifies the sanctions to be imposed
for violations of the obligations set under the Law.
- Crypto Assets
According to the Law, crypto assets are defined as intangible
assets that can be electronically created and stored with the use
of distributed ledger technology or similar technology, and that
can be distributed over digital networks while representing value
or rights.
The crypto assets covered under the Law are essentially those
that grant rights specific to capital market instruments, as well
as crypto assets that are traded on platforms or have undergone
initial sale or distribution. For instance, in the Board’s
principle decision numbered 2024/48, it was determined that the
provisions of the Law would not apply to those involved in buying,
selling, initial sale or distribution, exchange, transfer, and
custody of NFTs and the crypto assets used solely for creating or
acquiring various elements in virtual games. Aside from crypto
assets that provide rights specific to capital market instrument,
the Law also grants the Board the authority to establish principles
regarding the sale or distribution of crypto assets created through
the development of distributed ledger technology or similar
technology, which cannot be separated from the value provided by
this technology, without being subject to the provisions related to
capital market instruments. Although the Board has not yet
determined the listing requirements for these types of crypto
assets on platforms, it is anticipated that these criteria will be
determined in the future with the technical assistance of
TÜBİTAK (The Scientific and Technological Research
Council of Türkiye).
- Crypto Asset Service Providers
According to the Law, crypto asset service providers are
classified as follows:
i. Platforms: The platforms are broadly defined
to include entities that conduct one or more of the following
activities: buying and selling crypto assets, initial sales or
distributions, exchanges, transfers, custody required for these
activities, and other specified operations. At this stage, it
appears that both the Law and the Board’s principle decisions
are primarily focused on platforms, as the majority of the entities
currently operating in the crypto sector are platforms.
ii. Organizations Providing Crypto Asset Custody
Services: These are defined as entities responsible for
storing and managing customers’ crypto assets or the private
keys that authorize transfers from wallets, as well as other
custody operations to be designated by the Board. Custody services
for crypto assets are treated as a separate category, and the
principles and rules regarding these services are expected to be
established through secondary regulations by the Board in the
future.
iii. Other Organizations Designated to Provide Services
Related to Crypto Assets, Including Initial Sales or Distributions
Based on the Law: Secondary regulations are anticipated to
identify the organizations that fall under this category.
In this context, it has been observed that the broad nature of
the definitions in the Law has led to some uncertainties in
determining the scope of the Law. Although the current framework of
the Law is believed to primarily target platforms, it is important
to recognize that numerous other entities operating in the crypto
market could also fall under the scope of the Law and the secondary
regulations to be issued by the Board.
Obligation to Obtain an Operating License
The most fundamental obligation imposed by the Law on crypto
asset service providers is the requirement to obtain an operating
license from the Board in order to provide services. In its
principle decision numbered 2024/38, the Board set the following
criteria for the establishment of platforms to prevent potential
negative impacts that organizations lacking some qualifications
might cause in the sector:
- establishment as a joint-stock company in Türkiye,
- all shares required to be registered shares,
- shares required to be issued in exchange for cash,
- a minimum pre-paid capital of 50,000,000 Turkish Lira and the
equity not being less than this amount, - the articles of association of the relevant companies to comply
with the provisions of the Law and relevant regulations (e.g.,
including the phrase “cryptocurrency trading platform” in
the trade name to indicate the services offered; specifying that
the business purpose is exclusively the buying and selling of
cryptocurrencies; exclusively defining the subject matter of the
business as the execution of one or more of the following
activities: crypto asset trading, initial sale or distribution,
exchange, transfer, and the custody transactions required for these
activities; and ensuring that the board of directors consists of at
least three members, etc.), - founders, shareholders, and managers required to meet the
conditions specified in the Law and regulations (e.g., founders not
being convicted of crimes involving moral turpitude, crimes against
national security, or crimes against the banking system or
possessing the necessary financial capacity and the integrity and
reputation required for the business, etc.), and
- partnership structure to be transparent and clear.
According to the Law, those engaged in cryptocurrency service
provision at the time the Law came into effect had to apply to the
Board for an operating license within one month from July 2, 2024.
During this period, 80 entities applied to the Board for an
operating license, and a list of these entities can be accessed on
the Board’s website under the “Active Providers List“. As clearly stated
on the Board’s website, this list is still temporary, and its
existence does not mean that the listed entities have been
authorized under the relevant legislation. Therefore, the
applications for operating licenses are still under review, and no
entity has yet been announced as having obtained the operating
license. Furthermore, the Board’s website also includes a list
of entities that have decided to cease operations and not apply for
permission, listed as the “Liquidation Declaration List“. Entities
that applied for an operating license but had their applications
withdrawn or were not processed are included in the “Withdrawn Applications List and the Unprocessed
Applications List for Platforms“.
Other Obligations and Prohibited Activities
Under the Board’s Principle Decision No. 2024/48 along with
the Law, certain prohibited activities and additional obligations
that crypto asset service providers must comply with have been
determined. Some of the significant obligations outlined in this
framework include the following:
- First of all, accounts opened on behalf of clients must be
explicitly defined as belonging to the relevant platform’s
clients and cannot be used for purposes other than those
intended. - It is mandated that client cash transfers must be conducted
through banks or authorized institutions, with provisions stating
that cash cannot be taken in person from clients, delivered to
them, or held in any manner by the platform. - Platforms are required to receive orders through their
websites, mobile applications or registered phones, which they have
notified to the Board; otherwise, it is prohibited to receive
orders through instant messaging applications. It should be noted
that, except for the media or methods deemed appropriate within
this scope, it is prohibited to execute (i) transactions such as
trading, initial sale or distribution, clearing, settlement,
transfer, custody transactions required by them, or conversion of
customers’ crypto assets into cash or cash into crypto assets
by operating in a structure similar to a foreign exchange office,
or (ii) transactions on peer-to-peer digital marketplaces that
enable the purchase, sale and exchange of crypto assets directly
between their users, the performance of transactions one’s own
name but on behalf of another person as a regular occupation,
commercial or professional activity. Otherwise, the relevant
activities can be considered as an activity requiring permission
and may be deemed unauthorized cryptocurrency service
activity. - It is stipulated that platforms may only conduct transactions
to the extent of the crypto assets available in their wallets and
are prohibited from disposing of clients’ crypto assets for
their own or others’ benefit. Additionally, platforms are
banned from lending or crediting crypto assets or from engaging in
any transactions that would result in such outcomes. - The organization of promotional campaigns that promise returns
or warranty against losses, or that provide any benefits to
individuals who attract clients or the clients they bring in, is
also prohibited. - Obligations have been established regarding how records of
received orders must be maintained. For orders received via the
website or mobile application, the date, time, and source of the
order must be recorded, while orders taken by phone must have their
voice recordings stored in an unalterable manner. A deadline of
November 8, 2024, has been set for establishing the necessary
infrastructure to maintain these records as specified.
Foreign-Based Platforms
The Law also contains regulations concerning foreign-based
platforms. Accordingly, it is regulated that any activities
conducted by foreign-based platforms targeting individuals residing
in Türkiye or the provision of activities related to crypto
assets that are prohibited under regulations set by the Board to
individuals in Türkiye will also be considered unauthorized
crypto asset service provision.
Foreign-based platforms will be considered as targeting
individuals residing in Türkiye in case of any of the
following: (i) having an enterprise (presence) in Türkiye,
(ii) having a Turkish-language website, and (iii) making any
promotional and marketing activities related to the crypto asset
services offered either directly or through individuals or
institutions based in Türkiye. It should be noted that
particularly promotional and marketing activities may have a broad
scope and could result in many foreign-based crypto asset service
providers falling under the Law’s scope.
Furthermore, additional criteria for determining whether
activities target residents in Türkiye may also be established
by the Board, although no such determinations have been made
yet.
If foreign platforms with activities targeting individuals
residing in Türkiye have not applied for an operating license,
they had to terminate their activities aimed at residents in
Türkiye by October 2, 2024. Platforms that do not comply with
this requirement may face sanctions.
It is debated that these specific provisions concerning
platforms rather than all foreign-based crypto asset service
providers may also apply to other crypto asset service providers in
case of any dispute. Since, the sanctions are generally addressed
in relation to unauthorized crypto asset service provision.
Sanctions
The Law also stipulates the penalties to be imposed due to
violations of the obligations under the Law and the Board’s
decisions:
- Accordingly, the authorities of real and legal persons which
operate as crypto asset service providers without obtaining an
operating license shall be punished with imprisonment for a term of
three to five years and judicial fines. It should be noted that
this is an offense that can be prosecuted ex officio. In practice,
investigations and prosecutions are expected to be conducted
following a notification from the Board. - It is stipulated that the chairman, members of the board of
directors, and other officials of a crypto asset service provider
who embezzle funds, monetary instruments, securities, or other
goods or crypto assets entrusted to them by virtue of their duties,
or which they are responsible for safeguarding, storing, or
supervising, shall be subject to imprisonment for a term of eight
to fourteen years, in addition to a judicial fine. Furthermore,
they shall be required to compensate the crypto asset service
provider for any damages incurred as a result of their
actions. - It is regulated that the natural person partners of a crypto
asset service provider whose operating license has been revoked and
who legally or de facto held the management or control of the
crypto asset service provider or its customers, to the crypto asset
service provider or its customers by directly or indirectly using
the resources of the service provider or its customers for their
own or others’ interests in a way that jeopardizes the safe
operation of the crypto asset service provider will be considered
as embezzlement. Accordingly, those who commit these acts will be
sentenced to imprisonment from 12 years to 22 years and a judicial
fine up to twenty thousand days; however, the amount of the
judicial fine shall not be less than three times the amount of the
damage incurred by the crypto asset service provider and its
customers. Furthermore, the relevant persons may also be required
to compensate the damages jointly and severally. - Additionally, it is regulated that if it is determined that
unauthorized capital market activities are carried out through the
internet, the Board may decide to remove the content and/or block
access to the relevant contents/platforms or other publications
made through the internet.
The Board also has the authority to request the strengthening of
the financial structures of crypto asset service providers, as well
as to temporarily suspend their operations or revoke their
operating licenses.
Conclusion and Evaluation
The Law provides a comprehensive framework for crypto assets and
related services. While the broad scope of the Law may currently
lead to uncertainties in practice, the Board has started to clarify
many aspects through its principle decisions. It is anticipated
that the Board will establish the conditions for the listing of
crypto assets on platforms, clarify types of other activities by
foreign-based platforms targeting individuals residing in
Türkiye, finalize operating license applications and intensify
oversight on unauthorized activities as the next steps. It will be
crucial to closely monitor secondary regulations and announcements
from the Board.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
