Introduction

Regulations targeting crypto asset service providers are gaining increasing importance in global financial markets. In Türkiye, the legal frameworks in this area are also being tightened and clarified. With Law No. 7518 on the "Amendment of the Capital Markets Law," published in the Official Gazette dated 02.07.2024 and numbered 32590, significant regulations have been introduced regarding the activities of crypto asset service providers. This article will focus on the details and possible implications of these regulations, as well as their impact on the Turkish crypto asset market, in light of the announcement published by the Capital Markets Board ("CMB") on the same date.

1. Scope and Objectives of the Regulations

The new regulations bring the activities of crypto asset service providers under the scope of the Capital Markets Law, ensuring that firms operating in this field are regulated and supervised by the Capital Markets Board (CMB). This aims to enhance market transparency and reliability. Core activities such as the purchase and sale, exchange, transfer, and custody of crypto assets will now be subject to strict regulations and will be carried out in accordance with specific standards.

2. Scope of the Announcement

The announcement dated 02.07.2024 outlines the details of the new legal regulations introduced for crypto asset service providers in Türkiye. It provides a comprehensive explanation of the obligations and procedures that crypto asset service providers are required to comply with.

2.1. Application and Operating License:

• Existing crypto asset service providers must apply to the CMB with specific documents by 02.08.2024 in order to continue their operations.
• Applications must meet the requirements set forth in the secondary regulations to be issued pursuant to Articles 35/B and 35/C of the Law.
• Those who wish to commence operations must apply for an operating license by fulfilling the conditions stipulated in the secondary regulations.

2.2. Liquidation Process:

• Service providers who prefer not to continue their operations must submit a declaration by 02.08.2024 stating their decision to liquidate and that they will not accept new customers.
• Organizations undergoing the liquidation process must inform their customers of the situation through their websites, emails, text messages, phone calls, and other communication channels.

2.3. Foreign Service Providers:

• Crypto asset service providers established abroad must terminate their operations in Türkiye by 02.10.2024.
• Those who continue to operate in Türkiye after this date will be penalized in accordance with Articles 99/A and 109/A of the Law.

2.4. ATM and Electronic Devices:

• Activities of ATMs and similar devices located in Türkiye that enable crypto asset transfers must also be terminated by 02.10.2024.

2.5. Secondary Regulations:

• The secondary regulations to be issued under the Law will set out the technical and operational requirements that service providers must comply with.
• Entities wishing to commence operations before the secondary regulations enter into force must apply to the Capital Markets Board (CMB) with the information and documents specified in Annex/1 and Annex/2.

2.6. Public Announcement:

• Applications submitted to the Board will be announced on the CMB’s website under the titles “List of Active Entities” and “List of Entities Declaring Liquidation.”
• Entities that have decided to undergo liquidation must announce this decision on their websites and through other communication channels.

2.7. Sanctions:

Entities that do not comply with the new regulations or fail to complete the liquidation process will be subject to actions under Articles 99/A and 109/A of the Law.

Entities that fail to fulfill customer transfer requests during the liquidation process may be punished with imprisonment from three to five years and a judicial fine.

2.8. Information and Documents to be Submitted to the CMB:

The information and documents to be submitted to the CMB have been detailed to ensure the operational transparency and compliance of crypto asset service providers. These documents are intended to assess the company’s legal, financial, and technical infrastructure and will assist the CMB in effectively carrying out its supervisory role.

2.8.1. Annex-1: Announcement - Requested Documents

Decision of the Authorized Body:

• Declaration that the crypto asset service provider activities will continue.

Shareholders and Members of the Board of Directors:

• Criminal record certificate, copy of national ID card or passport, copy of diploma, and résumé.

Company’s Information Systems and Operational Processes:

• Information systems infrastructure in use.
• Processes and tools related to the protection of customer assets.
• Processes related to recording transactions on the blockchain system.
• Integrations with other internal and external systems (AML/CFT systems, reporting to public authorities, etc.).
• Operational and reporting processes.
• Risk management processes.

Custody Infrastructure:

• Custody system for crypto assets and customers' cash assets.
• Whether external services are used for the custody of crypto assets.
• The wallet technologies used for the custody of crypto assets.

Organizational Chart:

• A chart showing the company’s organizational structure.

2.8.2. Annex-2: Information Form

Company Information:

• Trade name, business or brand name, head office address, branch addresses, establishment date, MERSIS number, trade registry number, tax office and number, phone number, website address, email address, paid-up capital.

Financial Information:

• Balance sheet figures for previous periods, subsidiaries, banks worked with, debts to individuals and legal entities other than banks.

Shareholding and Management Structure:

• The company's shareholding structure, members of the board of directors, general manager and their assistants.

Customer and Employee Information:

• Number of customers, number of customers with balances, type and number of employees.

Custody Information:

• Types and number of crypto assets held, current value of the held crypto assets, value of crypto assets in hot and cold wallets, value of cash assets held on behalf of customers.

Documents:

• Company’s articles of association, trade registry records, financial statements showing the latest financial position.

2.9. Scope of Information and Documents to be Acquired by the CMB

The documents to be submitted to the CMB cover all operational, financial, and technical aspects of crypto asset service providers. Through these documents, the CMB will monitor whether the service providers' activities are conducted in a legal and secure manner. This information is crucial for the CMB to ensure market regulation, protect consumer rights, and enhance transparency in the sector.

2.10. Scope of the CMB's Supervisory Role

The CMB's supervisory role over crypto asset service providers is quite extensive. Based on the submitted documents and obtained information, the CMB will conduct audits in the following areas:

Compliance Audit:

• It will audit whether companies comply with legal regulations and whether they have obtained the necessary licenses and permits.

Financial Audit:

• It will evaluate the financial stability of companies by reviewing their financial condition and financial reports.

Operational Audit:

• It will audit the companies' information systems, security measures, and policies for the protection of customer assets.

Risk Management Audit:

• It will audit the companies' risk management processes and the effectiveness of these processes.

Violation and Sanction:

• It will impose sanctions on companies that do not comply with the regulations and, if necessary, revoke licenses.

3.Secondary Regulations are Awaited

The announcement dated 02.07.2024 serves as an informational notice regarding the implementation of amendments made to the Capital Markets Law. This announcement is not a secondary regulation specified in the Law but rather outlines the procedures to be followed temporarily until the secondary regulations are issued. The secondary regulations to be issued under Articles 35/B and 35/C of the Law will establish the detailed rules and standards that crypto asset service providers must comply with. Therefore, industry players must closely monitor this transition period and ensure rapid compliance when the secondary regulations are published.

4. Opportunities and Challenges for Market Actors

The new regulations present both opportunities and challenges for crypto asset service providers. For large and institutional firms, these regulations may offer an opportunity to gain a stronger position in the market. However, small and medium-sized companies may face difficulties due to the investments required to comply with the regulations. The additional obligations brought by the regulations will increase the operational costs of these firms.

5. Consumer Protection and Market Transparency

The new regulations aim to protect consumers' rights and increase market transparency. Crypto asset service providers will be required to report regularly to the CMB and meet certain standards. This will ensure the protection of consumers' investments and prevent potential fraudulent activities. Additionally, the increase in market transparency will enhance investor confidence and positively impact interest in the market.

6. Secondary Regulations and Future Steps

In addition to the changes brought by Law No. 7518, the secondary regulations to be issued by the CMB are also of great importance. These regulations will define the activities of crypto asset service providers in more detail and play a critical role in ensuring market regulation. Along with the secondary regulations, clearer criteria regarding the operational licenses of crypto asset service providers will be established. These criteria will require service providers to meet certain standards in areas such as technological infrastructure, security measures, and customer protection policies.

7. Sanctions and Legal Consequences

Entities that fail to comply with the new regulations or complete the liquidation process will face severe sanctions. Under Articles 99/A and 109/A of the Law, unauthorized crypto asset service provider activities are classified as crimes and subject to heavy penalties. This is of great importance for ensuring market regulation and preventing unfair competition. Additionally, companies that do not comply with the regulations will risk losing customer trust and suffering reputational damage.

8. International Perspective and Türkiye’s Position

Türkiye’s regulations for crypto asset service providers are considered a significant step when compared to international markets. Many countries are taking similar steps to regulate the crypto asset markets. Türkiye’s regulations in this area reflect the country's goal of becoming a reliable player in the crypto asset market. This could increase the interest of international investors in Türkiye and strengthen the country's potential to become a regional hub in the crypto asset market.

9. Economic and Technological Impacts of the Regulations

The economic and technological impacts of the new regulations are also noteworthy. The technological standards that firms operating in the crypto asset market must comply with will encourage the adoption of innovative solutions and enhanced security measures within the sector. This could make positive contributions to Türkiye’s FinTech and crypto asset ecosystem. Additionally, the economic obligations imposed by the regulations could lead to increased competition in the market and improvements in service quality.

10. Social and Cultural Dimensions of the Regulations

The regulation of crypto asset markets is a topic that involves not only economic and technological aspects but also social and cultural dimensions. The new regulations could facilitate broader acceptance of crypto assets within society and contribute to increased financial literacy. Furthermore, the transparency and security brought by the regulations may enhance public trust in crypto assets and raise awareness and understanding in this field.

11. The Impact of the Regulations on the Crypto Asset Ecosystem

The growth and development of the crypto asset ecosystem largely depend on the quality of regulatory frameworks. Türkiye’s new regulations are supportive of this ecosystem and will ensure that crypto assets are traded in a legal and secure manner. This could encourage the emergence of new ventures and innovative projects, contributing to the creation of a more dynamic and sustainable crypto asset ecosystem.

Conclusion

The new regulations introduced by Law No. 7518 are an important step in Türkiye’s efforts to regulate and supervise the crypto asset market. These regulations are aimed at enhancing market security, protecting consumers, and ensuring market transparency. The obligations imposed on crypto asset service providers will contribute to the market adopting a more institutional structure. In the long term, it is expected that these regulations will help create a reliable and orderly environment in Türkiye’s crypto asset market.