The "Crypto Law," for which the Turkish crypto market has been waiting for a long time, came into force on July 2, 2024, as the Law on Amendments to Capital Markets Law No. 7518 dated June 26, 2024 ("Law").
The primary regulations, especially concerning Crypto Asset Service Providers (“KVSP”), are for KVSPs.
It has imposed important obligations and required it to fulfill the obligations it has determined within certain periods of time.
In order for KVHSs to be established in Turkey, to start operations, or for existing KVHSs to continue their activities, it is obligatory to apply to the Capital Markets Board (“CMB”, “Board”) and obtain permission and licenses. However, KVHSs that have completed these processes can use the authority given to them. will be able to continue its activities within the scope of the certificate.
Another important issue determined by the law is that it is mandatory for KVHSs to store the crypto assets of their customers in their own wallets. However, if customers do not prefer to store their crypto assets in their own wallets, the relevant assets can be stored in banks authorized by the CMB and approved by the Banking Regulation and Supervision Board (“BRSA”) or in crypto asset storage institutions authorized by the board. Customer cash must be kept in banks.
was kept.
The law grants the CMB the authority to determine the obligations that must be fulfilled in the regulation of KVHS. Due to the complex technical structure of blockchain technology and crypto assets, CMB will consult the Scientific and Technological Research Council of Turkey (“TÜBİTAK”) on technical matters.
After the law came into force, CMB published an important announcement regarding the procedures and principles of KVHS license applications.
TUBITAK, on the other hand, has clearly announced the areas and duties in which it will support the CMB in the relevant processes on its official website.
However, one point that should not be forgotten is that many obligations that must be fulfilled and documents that must be prepared by KVHSs during the relevant process are prepared with the support of lawyers who are familiar with blockchain technology. Although compliance officers play an important role in this process, it is quite possible that various disputes may arise, especially with the unknowns brought about by the law.
IMPORTANT PERIOD AND DATES FOR KVHS'S AS A RESULT OF THE DECISION TO BE MADE
As we mentioned, the Law specifies the obligations of KVHSs within a certain period of time.
It has set various deadlines for its implementation. The law states KVHS here:
➢ Those who operate as crypto asset service providers on the date the law comes into force,
➢ They will decide to liquidate and will not accept new customers during the liquidation process,
➢ Those who want to start their activities after the law comes into force,
➢ Although its head office is abroad and not established in Turkey, it is resident in Turkey.
those who provide services to customers,
It divided it into 3 parts: and stipulated periods along with various obligations accordingly.
Accordingly, KVHSs currently operating in Turkey will enter into force on July 2, 2024.
within 1 (one) month until 2 August 2024, in accordance with the information and documents specified by the CMB.
They must complete their applications.
For KVHSs that will cease their operations in Turkey and decide to liquidate, the CMB has issued a notice that they will take a liquidation decision within 3 (three) months from July 2, 2024, when the Law comes into force, until October 2, 2024, and that they will not accept new customers during the liquidation process. They are required to make a declaration to . The declaration to be made to the CMB must be made within 1 (one) month until August 2, 2024. Those who will be liquidated must also announce this situation on their websites and notify their customers via e-mail, text message, phone call or similar notifications.
They must be notified via communication tools.
Those who want to start new activities after the law comes into force must apply to the CMB within 1 (one) month, until August 2, 2024, before starting their activities, and declare that they will make the necessary applications to obtain an operating permit by meeting the conditions stipulated in the secondary regulations.
For KVHSs that are headquartered abroad and provide services to Turkish customers even though they are not established in Turkey, it is mandatory to carry out activities for persons resident in Turkey or to carry out activities to be carried out by the Board.
It has been specifically stated that providing any prohibited activity regarding crypto assets within the scope of the regulations to persons resident in Turkey will also be considered as unauthorized crypto asset service provider. Abroad
In case of opening a business in Turkey by resident platforms, creating a Turkish website, or carrying out promotional and marketing activities directly and/or through persons or institutions resident in Turkey regarding the crypto asset services offered, the activities will be carried out in Turkey.
It will be assumed that it is intended for residents. For this reason, KVHSs located abroad must terminate their activities by 2 (two) October 2024 at the latest.
• Although it is not widely used in Turkey, crypto asset ATMs and transaction devices in Turkey must be removed by October 2, 2024.
4. KVHS CMB LICENSE PROCESS
In the text (ANNEX-1) titled "Announcement Concerning Crypto Asset Service Providers" published by the CMB, which is authorized by the CMB to take various measures during the licensing process for KVSPs and after the process, the information and documents that KVSPs must provide during the application process to the CMB are stated. Application documents and information form are shared in the attachment of the relevant announcement. These documents, secondary regulations, and information and documents that are likely to be requested from KVHS will be listed in this section.
It is important to note that the definition of KVHS in the Law can cover not only crypto asset exchanges but also businesses that carry out Inital Coin Offering (ICO) and Inital Dex Offering (IDO) in a very wide scope. It is unclear whether this scope will be narrowed in future regulations. However, it is thought that it would be beneficial for these businesses to take the necessary precautions at the first stage.
4.1. General Information and Documents
- Information and Documents Regarding Partners and Senior Management: Criminal record documents to be obtained within the last 6 months for senior managers, main shareholders, CEO and board members, for Turkish citizens
The identity card sample, passport sample for foreigners, diploma samples and CV, as well as the letter from SDIF will need to be transferred to the CMB.
- Business Plan and Strategy: CMB requests KVHSs to declare the business plan and strategy that it is currently carrying out and will continue to work on after the Law. This
This section is of critical importance, especially in terms of application. The reason is that since the scope of the business plan and strategy can be quite variable, the features of blockchain technology and crypto assets
It is important to accurately determine how it is used in the relevant KVHS and to report accordingly. Important points that we think should be included in the business plan is as follows:
o Company Information: Company's trade name, establishment date and trade registry number, Introduction of the management team and key personnel, Company's partnership structure and shareholders
o Market Analysis: Definition of the target market, Competition analysis, Customer segments and demographic information
o Products and Services: Promotion of the products and services offered (especially for crypto asset exchanges
Types of tokens listed and brief description), Product/service development process, Benefits of the product/service to customers, Future product and service plans (Token types planned to be listed)
o Revenue Sources and Business Model: Business model description, Revenue sources and pricing strategy,
Sales and distribution channels, Customer acquisition and retention strategies
o Marketing and Sales Strategy: Marketing plan and communication strategies, Advertising, promotion and public relations activities, Digital marketing and social media strategies
o Operational Plan: Operational structure, Technology and information systems infrastructure (Detailed explanation of the wallet technology or technologies in which crypto assets are stored, Detailed explanations of the processing of transactions into the blockchain system.
o Financial Plans and Projections: Current financial situation and past financial performance, Income statement, cash flow statement and balance sheet projections, Profit and loss projections, Financing needs and sources, Investment plans, Financial audit report to be obtained from independent institutions.
o Risk Analysis and Management: Business risks and precautions to be taken against these risks, Financial risks and management strategies.
o Legal and Regulatory Compliance: Compliance strategies, licenses and permits with CMB, MASAK, BRSA and other relevant regulatory bodies (licenses and permits obtained here if there are subsidiaries in Europe)
Additional Information that is Useful to Provide: References, Past experiences and achievements of the team, Important business partnerships and collaborations.
4.2. General Compliance Policies to be Prepared and Submitted
Apart from the areas where KVHSs need to apply compliance policies in general, they also need to apply various compliance policies specifically for blockchain technology and listed crypto assets. Below is this harmony
We include these policies by taking into account possible regulations that may occur in the future.
4.2.1. General Compliance Policies
General Principles: Commitment to Legal Compliance, Determination of Effective Standards
AML / CFT Policies: Know Your Customer (KYC) Procedures, Suspicious Transaction Reporting, Combating Money Laundering and Terrorism Financing
Data Protection and Privacy Policies: Implementation of data protection policies in accordance with the legislation on the protection of personal data, especially the Personal Data Protection Law, confidentiality agreements with employees, business partners and third parties.
Risk Management Processes: Risk Assessment: Determination and evaluation of all risks that the company may encounter, Risk Mitigation Strategies
Audit and Internal Control Systems: Regular control of all processes of the company by internal audit teams, and audit of the company's financial and operational processes by independent audit firms.
Compliance Processes Regarding Information Technologies: Information Security Policy, Backup and Emergency Recovery Policy, Network Security Policies, Device and Hardware Management Policies, Software Management Policy, Evaluation of third party crypto storage platform (if any), Third Party Agreements, Emergency Response to Cyber Attacks Policy.
! Important Note: Audit report received from independent organizations regarding the information systems owned by KVHS
4.2.2. Compliance Processes Based on Blockchain Technology
Preparation of policies regarding wallet technologies (hot wallet, cold wallet or both) where customer crypto assets are stored, providing explanations as to whether services are received from another platform for storing crypto assets, reporting of listed crypto assets and classes (will be required later for TÜBİTAK approval) , It is necessary to prepare reports that include explanations of the processes regarding the processing of transactions made in the KVHS to the blockchain system, policies regarding the purchase and sale orders of crypto assets in the KVHS, and explanations on the processes carried out regarding customer cash.
5. MINIMUM AMOUNT OF CAPITAL REQUIRED FOR KVHSs TO START OPERATIONS
Although the amount of capital required for KVHSs to start their operations was not specified in the primary regulations, in practice before the Law, KVHSs started with a minimum capital of 20 Million Turkish Liras, but in the post-Law period, with current inflation rates, this value will be reduced to a minimum capital of 200 Million Turkish Liras. We anticipate that payment will need to be made in cash.
6. MEASURES TO BE TAKEN BY EXCHANGES LOCATED ABROAD
KVHSs, which are headquartered outside Turkey and do not have any official establishment in Turkey, can open a business in Turkey, create a Turkish website, and engage in promotional and marketing activities directly or through persons or institutions resident in Turkey regarding the crypto asset services offered. It should not be forgotten that in case of any of the following situations, the activities will be considered to be aimed at persons residing in Turkey and carrying out these activities without a license will face sanctions. For this reason, it would be beneficial for KVHSs that do not intend to operate in Turkey to have geographical limitations.
7. EXPECTATIONS FROM FUTURE REGULATIONS
With the law, the primary regulations largely focused on the regulation of KVHSs, and as a precaution, the regulation of KVHSs was
defined in a broad framework. With future regulations, we expect the minimum capital amount and crypto asset classes to be clearly regulated through secondary legislation. In particular, the status of qualified intellectual property rights (non-fungible tokens, “NFT”) remains unclear. Many KVHS abroad have an NFT market
We know that there is, but since the status of NFTs is not currently clear in our country, this practice cannot be realized. We think that this situation will be eliminated with the definitions to be made in future regulations.
In addition, it is expected that legal regulations for the separate taxation of crypto assets and transactions carried out with crypto assets will be introduced through a "tax package".
It is understood from the developments reflected in the press and backstage information that the transaction tax for crypto assets is between one in ten thousand (0.01%) and three in ten thousand (0.03%). It is expected that the "judicial package", which will include the regulation regarding the transaction tax, will be submitted to the Parliament by the last week of July.
Announcement on Crypto Asset Service Providers
July 02, 2024
As it is known, the "Law Amending the Capital Markets Law" numbered 7518 was published in the Official Gazette dated 02.07.2024 and numbered 32590 and entered into force. With the aforementioned regulation, crypto asset service providers operating or to operate in our country have been taken under the authority of the regulation and supervision of our Board within the scope of the Capital Markets Law No. 6362 (Law).
Within the scope of this regulation, all kinds of environments where one or more of the activities of trading, clearing, transfer and custody services required by crypto assets and the storage and management of crypto assets or private keys that provide the right to transfer from the wallet related to these assets are carried out as a regular occupation, commercial or professional activity fall within the scope of this Law, and action will be taken against those who do not fulfill the obligations specified in the Law in accordance with Articles 99/A and 109/A of the Law.
In the first paragraph of the Provisional Article 11 added to the Law No. 6362 with the Regulation "Those operating as crypto asset service providers on the date of entry into force of the Law enacting this article are obliged to apply to the Board with the documents to be determined by the Board within one month as of the effective date and submit a declaration that they will make the necessary applications to obtain an operating license by meeting the conditions to be stipulated in the secondary regulations to be issued pursuant to the provisions of Articles 35/B and 35/C of the Law or that they will take a liquidation decision within three months without damaging customer rights and interests and that they will not accept new customers during the liquidation process. Those who wish to commence operations after the enforcement of the Law enacting this Article shall apply to the Board before commencing their operations and declare that they will make the necessary applications to obtain an operating license by meeting the conditions to be stipulated in the secondary regulations. The applications made to the Board within the scope of this paragraph shall be announced on the Board's website. Institutions to be liquidated shall announce this situation on their websites and shall also notify their customers via electronic mail, text message, telephone and similar communication tools."
In this framework; those who are carrying out crypto asset service provider activities as of 02.07.2024 and intend to continue to do so, are obliged to submit their declarations in writing to the Board in accordance with the first paragraph of the Provisional Article 11 together with the information, documents and explanations in Annex/1 and Annex/2 until 02.08.2024.
As of 02.07.2024, those who have been operating as crypto asset service providers and will take a liquidation decision since they do not have the will to continue this activity, are required to submit to our Board in writing until 02.08.2024, their declarations that they will take a liquidation decision and that they will not accept new customers during the liquidation process, together with the form in Annex/2 and their explanations on how they will carry out the liquidation process. In this context, institutions that will be required to take a liquidation decision until 02.10.2024 pursuant to the Law shall, without prejudice to the relevant provisions of the Turkish Commercial Code No. 6102, announce this situation on their websites and notify their customers via electronic mail, text message, telephone and similar communication tools. The responsibility for the proper communication of the notifications to the customers belongs to the institutions to be liquidated.
Organizations wishing to commence operations after the date of entry into force of the law but before the secondary regulations to be issued by the board enter into force, shall submit their declarations in accordance with the first paragraph of Provisional Article 11 together with the information, documents, and explanations in Annex 1 and Annex 2 before commencing their operations.
They are obliged to submit their applications to the Board in writing.
The applications made to the Board will be announced in two separate lists under the "Institutions/Crypto Asset Service Providers" tab on the Board's website, namely the "List of Operators" and the "List of Liquidation Declarants", and the updated lists will be available at htps://spk.gov.tr/kurumlar/kripto-varlik-hizmet-saglayicilar
It will be possible to access at the following address: Incomplete or insufficient applications will not be included in the "List of Operators".
After the secondary regulations to be issued by the Board pursuant to the Law enter into force, any organization not included in this list will not be able to carry out activities without the permission of the Board. The institutions included in this list will continue their activities, but will also apply for an operating permit in accordance with the conditions to be specified in the secondary regulations.
Those that have not applied to the Board in the above-mentioned procedure and by the specified date may be subject to the provisions of Articles 99/A and 109/A of the Law.
It should be reminded that the failure of these institutions to fulfill the transfer requests of customers who have accounts in institutions that prefer to go into liquidation or do not apply to the Board within the specified period will constitute the crime of unauthorized crypto asset service provider activity within the scope of Article 109/A, and these persons may be sentenced to imprisonment from three years to five years and a judicial fine from five thousand days to ten thousand days.
The first paragraph of Article 99/A of the Law stipulates that "Engaging in activities for residents in Turkey by platforms residing abroad or providing a prohibited activity related to crypto assets to residents in Turkey within the scope of the regulations to be made by the Board shall also be deemed as unauthorized crypto asset service provision.
In the event of any of the following situations: opening a workplace in Turkey, creating a Turkish website, engaging in promotional and marketing activities directly and/or through persons or institutions resident in Turkey regarding the crypto asset services offered by platforms located abroad, the activities are deemed to be directed to residents in Turkey. The activities are deemed to be directed to persons resident in Turkey
Additional criteria regarding the determination of whether the transaction is intended for the purpose of the Board may be determined by the Board." In this framework, non-resident crypto asset service providers are required to terminate their activities for Turkish residents until 02.10.2024 at the latest, as specified in the first paragraph of Article 99/A of the Law.
must. After this date, the provisions of Articles 99/A and 109/A of the Law will apply to those who continue to carry out activities for Turkish residents as specified.
The activities of ATMs and similar electronic transaction devices located in Turkey that allow customers to convert crypto assets into cash or cash into crypto assets and to transfer crypto assets must be terminated until 02.10.2024 at the latest. Those who continue to operate after this date and
The provisions of Articles 99/A and 109/A of the Law shall apply to those who enable this.
ANNEX 2
DOCUMENTS THAT CRYPTO ASSET SERVICE PROVIDERS SHOULD SUBMIT WITH THEIR APPLICATION TO THE BOARD
1) The decision of the authorized body regarding the declaration that the crypto asset service provider will continue to operate in accordance with Provisional Article 11 of the Law,
2) Regarding shareholders and members of the board of directors, general manager and assistant general managers;
a. Criminal record certificate taken within the last 6 months,
b. Identity card sample (Turkish citizens) / passport sample (Foreigners),
c. Diploma sample and curriculum vitae,
3) The company;
a. The information systems infrastructure it uses,
b. Processes and tools for the protection of customer assets,
c. Processes related to the processing of transactions into the blockchain system,
d. Integrations with other internal and external systems (AML/CFT systems, reporting to public authorities, etc.),
e. Operation and reporting processes and
f. Documents related to explanations on the functioning of risk management processes,
4) Including the following issues regarding the Company's custody infrastructure;
a. The functioning of the custody system for crypto assets and clients' cash assets,
b. Whether services are obtained from outside the Company for the custody of crypto assets,
c. Explanations and related documents on which wallet technologies are used to store crypto assets,
5) Organization chart.