Key Highlights and Noteworthy Details in the Draft Crypto Asset Bill
Following the announcement that the draft legislation known to the public as the Crypto Asset Bill will be enacted within 2024, it has become necessary to examine the draft bill (“Draft”) in detail. As crypto assets continue to gain traction worldwide and across various industries, the legal frameworks and regulations governing this field are evolving correspondingly. In Türkiye, new definitions and concepts have been introduced, and roles and responsibilities have been clearly established. The Capital Markets Board (“Board”) has been granted authority regarding the issuance of crypto assets as capital market instruments, as well as the sale and distribution of crypto assets through crowdfunding. Moreover, legal regulations and obligations concerning crypto asset service providers have been clarified, with significant penalties prescribed for unauthorized activities. The Draft also outlines measures to be taken in the event of criminal activities conducted via internet or social media providers, reflecting a comprehensive approach to regulation. This article will briefly evaluate the main topics and critical aspects of the crypto asset regulations, which are currently at the draft bill stage.
1. New Definitions and Concepts Regarding Crypto Asset Regulations
In the Draft, five concepts are defined for the first time: wallet, crypto asset, crypto asset trading platform (“Platform”), crypto asset service provider, and crypto asset custody service. As these concepts are being regulated for the first time in Turkey, it is observed that most of them are structured in line with their commonly known equivalents in the relevant sector.
Among these, the most noteworthy is the definition of crypto assets as “intangible assets that can be virtually created and stored using distributed ledger technology or similar technology, distributed via digital networks, and capable of representing value or rights.” This definition indicates that the legislator adopts an approach aligned with the relevant sector and global regulations.
2. The Authority of the Board Regarding the Issuance of Crypto Assets as Capital Market Instruments
It is stated that the Board may determine the regulations regarding the issuance of crypto assets through secondary regulations, outside the scope of Article 13 of the Capital Markets Law (“CML”), which governs the dematerialization of capital market instruments.
3. The Board’s Authority Regarding the Sale and Distribution of Crypto Assets Through Crowdfunding
It is understood that the Board has been granted the authority to issue secondary regulations regarding the sale or distribution of crypto assets through crowdfunding, provided that the sale or distribution is conducted in accordance with the principles set by TÜBİTAK and involves crypto assets whose value cannot be separated from a distributed ledger technology or a similar technological infrastructure approved by TÜBİTAK.
4. Legal Regulations and Responsibilities Regarding Crypto Asset Service Providers
Another regulation outlined in the Draft, proposed as Article 35/B of the Capital Markets Law (CML), grants the Board the authority to carry out regulatory actions, make special and general decisions, and impose measures and sanctions concerning crypto assets that confer rights specific to capital market instruments.
The provision stating that "the authority regarding crypto assets deemed as electronic money within the scope of payment services and electronic money legislation shall belong to the CBRT" establishes that the authority over crypto assets pegged to an electronic monetary unit and issued in exchange for funds under the payment services and electronic money legislation shall rest with the Central Bank of the Republic of Türkiye (CBRT).
On the other hand, it has been stated that the authority regarding crypto assets that provide access to a product or service belongs to the Ministry of Trade.
It is stipulated that platforms must obtain permission from the Board in order to be established and become operational.
Crypto asset service providers' partners are required to meet strict conditions, including circumstances such as bankruptcy, declaration of concordat, and offenses arising from repealed laws.
Crypto asset trading platforms are required to verify the identities of their customers and fully comply with anti-money laundering regulations.
Customers are required to hold their crypto assets in their own wallets. Those who fail to comply will be held liable for any resulting losses. For crypto assets not stored in personal wallets, custody services must be provided by banks deemed appropriate by the BRSA or other entities authorized by the Board, in accordance with secondary regulations to be issued by the Board, while customer cash must also be held by such authorized institutions.
Platforms are entrusted with the responsibility of detecting and preventing market-distorting activities.
Crypto asset service providers, similar to financial institutions, will be audited by independent auditing firms in matters related to financial supervision and information systems auditing.
Administrative fines may be imposed on those who act contrary to the legal provisions introduced by the Draft or the secondary regulations to be established based on them.
5. Measures and Responsibilities for Crypto Asset Service Providers
With the regulations to be added to Article 99/A of the CML and its continuation, measures will be envisaged for irregular transactions, unauthorized crypto asset service provider activities, and unlawful investment advisory and portfolio management activities related to crypto assets.
When unlawful advertisements, promotions, and announcements related to crypto assets are made on the internet or other media, the Board will have the authority to block access to these contents or halt the advertisements and promotions.
When unlawful investment advisory and portfolio management activities related to crypto assets are conducted, the Board will be able to apply to the Information and Communication Technologies Authority to request the removal of the relevant content or the blocking of access.
Activities carried out by platforms located abroad targeting individuals residing in Türkiye are considered unauthorized crypto asset service provider activities. In this context, foreign-based platforms that establish a business in Türkiye, create Turkish-language websites, or engage in promotional and marketing activities are presumed to be targeting individuals residing in Türkiye, and they will be regarded as operating as unauthorized crypto asset service providers. Sanctions may be applied to the relevant parties.
6. Penalties for Unauthorized Crypto Asset Service Provider Activities
It is foreseen that individuals and legal entities found to be operating as crypto asset service providers without authorization will be punished with imprisonment from three to five years and judicial fines ranging from five thousand to ten thousand days.
7. Offenses of Embezzlement and Penalties for the Officials of Crypto Asset Service Providers
The regulation in the draft indicates that, unlike the Turkish Penal Code, different actions specifically designated as embezzlement offenses are envisaged.
The regulation expected to be introduced as Article 110/A of the Capital Markets Law (SPK) states that the chairman, members, and other staff of crypto asset service providers will face imprisonment of six to twelve years and judicial fines of up to five thousand days if they embezzle money or crypto assets. In cases where fraudulent actions are committed to conceal the embezzlement, the offender will face imprisonment of twelve to eighteen years and judicial fines of up to twenty thousand days. If individuals holding the management or control of a crypto asset service provider whose operating license has been revoked use the provider's resources to its detriment, this will also be considered embezzlement.
8. Personal Liability for Crypto Asset Service Providers
The regulation proposed under Article 110/B of the Capital Markets Law states that the chairman of the board, members, other members of the management, and real person shareholders who legally or de facto hold the management or control of the crypto asset service provider, who carry out actions and decisions considered to be embezzlement, can be subject to personal liability limited to the damages caused to clients, and their bankruptcy may be requested.
Upon the request of the Board, a personal bankruptcy decision may be made directly by the court. If these decisions and actions are made with the aim of providing benefits to third parties, those who receive the benefits may also be affected by this liability.
9. Revenue Share Allocation of Crypto Asset Trading Platforms
Platforms, starting from the year they receive operating permission, may allocate up to a maximum of 10% of all their revenues, excluding interest income, for each calendar year, as revenue to the Board's budget, based on the percentage determined by the Board.
10. The Operating License Process for Crypto Asset Trading Platforms and Temporary Regulation Regarding Existing Platforms
According to the transitional period expected to be regulated under Article 11 of the SPK, those operating as platforms at the time the law comes into effect can continue their activities without the permission of the Board until secondary regulations are issued. During this period, new platforms cannot be established, and those already established cannot commence operations. However, after meeting the specified conditions and obtaining permission from the Board, new platforms will be able to begin operations.
After the secondary regulations come into effect, platforms operating as of the date the law is enacted will be considered to be engaged in unauthorized crypto asset service provider activities if they do not apply to the Board for an operating license within the specified time frame.
Platforms based abroad will be required to terminate their activities directed at individuals residing in Türkiye within 1 month following the date the law comes into effect.
CONCLUSION
The regulations proposed in the crypto asset draft law, which is expected to become law in 2024, cover a wide range of areas, from the definitions of crypto assets to the powers of the Board. These regulations aim not only to ensure that crypto asset service providers and platforms operate within the legal framework but also to enhance stability and trust in this sector. The powers of the Board, the process for obtaining operational licenses, penalties and sanctions for unauthorized activities, and other related matters are thoroughly addressed. Therefore, crypto asset service providers and platforms must manage their legal compliance and legal processes in a comprehensive manner, ensuring an effective oversight mechanism and maintaining smooth operations.
Following the announcement that the draft legislation known to the public as the Crypto Asset Bill will be enacted within 2024, it has become necessary to examine the draft bill (“Draft”) in detail. As crypto assets continue to gain traction worldwide and across various industries, the legal frameworks and regulations governing this field are evolving correspondingly. In Türkiye, new definitions and concepts have been introduced, and roles and responsibilities have been clearly established. The Capital Markets Board (“Board”) has been granted authority regarding the issuance of crypto assets as capital market instruments, as well as the sale and distribution of crypto assets through crowdfunding. Moreover, legal regulations and obligations concerning crypto asset service providers have been clarified, with significant penalties prescribed for unauthorized activities. The Draft also outlines measures to be taken in the event of criminal activities conducted via internet or social media providers, reflecting a comprehensive approach to regulation. This article will briefly evaluate the main topics and critical aspects of the crypto asset regulations, which are currently at the draft bill stage.
1. New Definitions and Concepts Regarding Crypto Asset Regulations
In the Draft, five concepts are defined for the first time: wallet, crypto asset, crypto asset trading platform (“Platform”), crypto asset service provider, and crypto asset custody service. As these concepts are being regulated for the first time in Turkey, it is observed that most of them are structured in line with their commonly known equivalents in the relevant sector.
Among these, the most noteworthy is the definition of crypto assets as “intangible assets that can be virtually created and stored using distributed ledger technology or similar technology, distributed via digital networks, and capable of representing value or rights.” This definition indicates that the legislator adopts an approach aligned with the relevant sector and global regulations.
2. The Authority of the Board Regarding the Issuance of Crypto Assets as Capital Market Instruments
It is stated that the Board may determine the regulations regarding the issuance of crypto assets through secondary regulations, outside the scope of Article 13 of the Capital Markets Law (“CML”), which governs the dematerialization of capital market instruments.
3. The Board’s Authority Regarding the Sale and Distribution of Crypto Assets Through Crowdfunding
It is understood that the Board has been granted the authority to issue secondary regulations regarding the sale or distribution of crypto assets through crowdfunding, provided that the sale or distribution is conducted in accordance with the principles set by TÜBİTAK and involves crypto assets whose value cannot be separated from a distributed ledger technology or a similar technological infrastructure approved by TÜBİTAK.
4. Legal Regulations and Responsibilities Regarding Crypto Asset Service Providers
Another regulation outlined in the Draft, proposed as Article 35/B of the Capital Markets Law (CML), grants the Board the authority to carry out regulatory actions, make special and general decisions, and impose measures and sanctions concerning crypto assets that confer rights specific to capital market instruments.
The provision stating that "the authority regarding crypto assets deemed as electronic money within the scope of payment services and electronic money legislation shall belong to the CBRT" establishes that the authority over crypto assets pegged to an electronic monetary unit and issued in exchange for funds under the payment services and electronic money legislation shall rest with the Central Bank of the Republic of Türkiye (CBRT).
On the other hand, it has been stated that the authority regarding crypto assets that provide access to a product or service belongs to the Ministry of Trade.
It is stipulated that platforms must obtain permission from the Board in order to be established and become operational.
Crypto asset service providers' partners are required to meet strict conditions, including circumstances such as bankruptcy, declaration of concordat, and offenses arising from repealed laws.
Crypto asset trading platforms are required to verify the identities of their customers and fully comply with anti-money laundering regulations.
Customers are required to hold their crypto assets in their own wallets. Those who fail to comply will be held liable for any resulting losses. For crypto assets not stored in personal wallets, custody services must be provided by banks deemed appropriate by the BRSA or other entities authorized by the Board, in accordance with secondary regulations to be issued by the Board, while customer cash must also be held by such authorized institutions.
Platforms are entrusted with the responsibility of detecting and preventing market-distorting activities.
Crypto asset service providers, similar to financial institutions, will be audited by independent auditing firms in matters related to financial supervision and information systems auditing.
Administrative fines may be imposed on those who act contrary to the legal provisions introduced by the Draft or the secondary regulations to be established based on them.
5. Measures and Responsibilities for Crypto Asset Service Providers
With the regulations to be added to Article 99/A of the CML and its continuation, measures will be envisaged for irregular transactions, unauthorized crypto asset service provider activities, and unlawful investment advisory and portfolio management activities related to crypto assets.
When unlawful advertisements, promotions, and announcements related to crypto assets are made on the internet or other media, the Board will have the authority to block access to these contents or halt the advertisements and promotions.
When unlawful investment advisory and portfolio management activities related to crypto assets are conducted, the Board will be able to apply to the Information and Communication Technologies Authority to request the removal of the relevant content or the blocking of access.
Activities carried out by platforms located abroad targeting individuals residing in Türkiye are considered unauthorized crypto asset service provider activities. In this context, foreign-based platforms that establish a business in Türkiye, create Turkish-language websites, or engage in promotional and marketing activities are presumed to be targeting individuals residing in Türkiye, and they will be regarded as operating as unauthorized crypto asset service providers. Sanctions may be applied to the relevant parties.
6. Penalties for Unauthorized Crypto Asset Service Provider Activities
It is foreseen that individuals and legal entities found to be operating as crypto asset service providers without authorization will be punished with imprisonment from three to five years and judicial fines ranging from five thousand to ten thousand days.
7. Offenses of Embezzlement and Penalties for the Officials of Crypto Asset Service Providers
The regulation in the draft indicates that, unlike the Turkish Penal Code, different actions specifically designated as embezzlement offenses are envisaged.
The regulation expected to be introduced as Article 110/A of the Capital Markets Law (SPK) states that the chairman, members, and other staff of crypto asset service providers will face imprisonment of six to twelve years and judicial fines of up to five thousand days if they embezzle money or crypto assets. In cases where fraudulent actions are committed to conceal the embezzlement, the offender will face imprisonment of twelve to eighteen years and judicial fines of up to twenty thousand days. If individuals holding the management or control of a crypto asset service provider whose operating license has been revoked use the provider's resources to its detriment, this will also be considered embezzlement.
8. Personal Liability for Crypto Asset Service Providers
The regulation proposed under Article 110/B of the Capital Markets Law states that the chairman of the board, members, other members of the management, and real person shareholders who legally or de facto hold the management or control of the crypto asset service provider, who carry out actions and decisions considered to be embezzlement, can be subject to personal liability limited to the damages caused to clients, and their bankruptcy may be requested.
Upon the request of the Board, a personal bankruptcy decision may be made directly by the court. If these decisions and actions are made with the aim of providing benefits to third parties, those who receive the benefits may also be affected by this liability.
9. Revenue Share Allocation of Crypto Asset Trading Platforms
Platforms, starting from the year they receive operating permission, may allocate up to a maximum of 10% of all their revenues, excluding interest income, for each calendar year, as revenue to the Board's budget, based on the percentage determined by the Board.
10. The Operating License Process for Crypto Asset Trading Platforms and Temporary Regulation Regarding Existing Platforms
According to the transitional period expected to be regulated under Article 11 of the SPK, those operating as platforms at the time the law comes into effect can continue their activities without the permission of the Board until secondary regulations are issued. During this period, new platforms cannot be established, and those already established cannot commence operations. However, after meeting the specified conditions and obtaining permission from the Board, new platforms will be able to begin operations.
After the secondary regulations come into effect, platforms operating as of the date the law is enacted will be considered to be engaged in unauthorized crypto asset service provider activities if they do not apply to the Board for an operating license within the specified time frame.
Platforms based abroad will be required to terminate their activities directed at individuals residing in Türkiye within 1 month following the date the law comes into effect.
CONCLUSION
The regulations proposed in the crypto asset draft law, which is expected to become law in 2024, cover a wide range of areas, from the definitions of crypto assets to the powers of the Board. These regulations aim not only to ensure that crypto asset service providers and platforms operate within the legal framework but also to enhance stability and trust in this sector. The powers of the Board, the process for obtaining operational licenses, penalties and sanctions for unauthorized activities, and other related matters are thoroughly addressed. Therefore, crypto asset service providers and platforms must manage their legal compliance and legal processes in a comprehensive manner, ensuring an effective oversight mechanism and maintaining smooth operations.
SubscribeYou can subscribe to stay updated on the shared blogs.
Turkish
