According to a World Economic Forum Report, Turkey ranks 4 in the world and 1 in Europe in terms of the usage of cryptocurrency in proportion to its population. Thanks to this huge potential, local and foreign investors show more and more interest in cryptocurrency exchanges, and other cryptocurrency service providers, leading to the inflow of investments to Turkey. The growing interest among individual and institutional investors in cryptocurrencies increased the need for the coming cryptoasset regulation in Turkey, strengthening the will of the public bodies in that regard.

What are the Present Regulations saying about cryptoassets?

The first regulation touching cryptoassets came from The Banking Regulation and Supervision Agency (BRSA). In 2013, it named Bitcoins (and all cryptocurrencies) as “virtual currency” (not e-money) and drew attention to the risks. The Capital Markets Board (CMB), warned the Turkish Capital Market Association not to conduct crypto-based transactions in 2017.

The Ministry of Treasury and Finance announced its concerns about cryptocurrencies in a press release made on March 1, 2021. Here, the ministry said it were carrying out necessary works under its chairmanship towards a cryptoasset regulation. In another press release on April 1, 2021, it also announced that The Financial Crimes Investigation Board (MASAK) would requested user information from cryptoasset trading platforms.

What is the cryptoasset not for?

Furthermore, the Central Bank published “The Regulation on the Disuse of Cryptoassets in Payments” on April 16, 2021. This regulation defined the cryptoassets for the first time. According to the definition of the Regulation, “cryptoasset means non-material assets that are virtually created and distributed over digital networks using distributed ledger or similar technology, but are not considered as fiat currency, deposit money, electronic money, payment instruments, securities or other capital market instruments”. In this definition, cryptocurrencies are basically considered as non-material assets. The regulation clearly stated that cryptocurrencies are not fiat currency, deposit money, electronic money, payment instruments, securities or other capital market instruments. It further imposed a number of restrictions, namely:

• Direct or indirect use of cryptoassets in payments;
• The provision of services involving the direct or indirect use of cryptoassets in payments; 
• Developing business models in which cryptoassets are used directly or indirectly in the provision of payment services;
• The use of cryptoassets in the issuance of electronic money;
• Mediating or transferring funds to or from platforms that provide trading, storage, transfer or issuance services related to cryptoassets (only for payment and electronic money institutions)

Cryptoasset service providers as “obliged parties”

As a further step, cryptoasset service providers have become “obliged parties” as specified in the “Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism” as of May 1, 2021. With this new arrangement, cryptocurrency exchanges, too, must conduct customer identification by the methods specified in the legislation. While the regulation stipulates that proof of both identity and address shall be provided in identification, it also allows digital onboarding. What is more, the MASAK General Communiqué no. 5 states that simplified measures may apply to face-to-face onboarded customers within the limits set by the company (obliged party) according to its risk structure.

What Will The Expected Main Regulation Bring?

As of today, there is still no fully-fledged regulation regarding the crypto market. Their legal status and the platforms on which cryptocurrency is traded are not yet clearly regulated. However, there are increasing signs that a new regulation may be issued soon (by July 2022).

The main regulatory authority for the cryptoasset service providers will be the CMB. Hence, cryptoasset trading platforms, cryptoasset service providers, and cryptoasset storage conditions will be subject to the CMB’s regulation and supervision. The regulation will make it compulsory to obtain an operating permit for cryptoasset trading platforms to establish and start operations. Moreover, the CMB will determine the activities organizations, capital structure, and information systems.

Customer protection

On the customer side, the regulation will put in place some protective measures for the customers’ cryptoassets. For one thing, it is highly likely that it will make it compulsory to store the cryptoassets in designated institutions. Furthermore, banks will have a central role in crypto businesses, assuming core roles.  The regulation will also set clear and detailed standards for IT systems and their safety.

Abroad based platforms

Perhaps one of the most important changes the coming regulation will bring is its ban on unauthorized service provision. This means that abroad-based platforms will need to have a legal presence in Turkey and get an operating permit. The non-compliant companies will have to cease their services in the Turkish market and stop their marketing and advertisements. Unauthorized operations, unlawful actions, and damages arising from cryptoasset service providers’ activities will be subject to penal and administrative sanctions.

What should Crypto Businesses Do Now?

It is obvious that the regulation is coming into force in a few months. It is important for the crypto businesses, domestic/abroad, to strengthen their positions. They should review their institutional and human resources capacity to prepare for the license application. The process will be akin to the license application process of e-money and payment service providers. As MENA Crypto, we are ready to assist you throughout this journey. Our leading professional team specializes in a wide range of aspects (Licensing, Taxation, IT, blockchain, NFT, Tokenomics, intellectual property) to address any issues. Check our services here.

Mehmet S. Yurtçiçek

Senior Legal Counsel