On Wednesday, the Turkish Parliament passed a landmark draft bill (The “Bill on Amendments to the Capital Markets Law”) aimed at regulating the cryptocurrency market. This long-awaited bill represents a significant step in aligning Turkiye’s regulatory framework with global standards, particularly those set by the Financial Action Task Force (FATF) and EU’s Markets in Crypto Asset (MiCA) regulations. Here’s a detailed breakdown of what this means for the crypto ecosystem in Turkiye:
Context and Importance
Turkiye has emerged as a major player in the global cryptocurrency market, ranking fourth worldwide with an estimated raw crypto transaction volume of $170 billion, surpassing countries like Russia, Canada, and Germany. (Chainalysis, 2023) With over 52% of Turkish adults aged 18-60 now owning cryptocurrencies, the need for a robust regulatory framework has become paramount. (KuCoin, 2023)
The urgency for this regulation was also prompted by past challenges. In 2021, the abrupt collapse of a major Turkish crypto exchange left many investors in a lurch, highlighting the absence of legal protections for crypto asset investors.
Moreover, this legislative move is pivotal in Turkiye’s efforts to address the requirements set by the Financial Action Task Force (FATF) to combat money laundering and financial crimes. Turkiye’s inclusion in the FATF’s “grey list” in 2021 necessitated stringent measures to regain its financial credibility on the international stage. The upcoming FATF meeting on June 28 will assess Turkiye’s progress, and the new crypto regulations are a crucial part of this evaluation. By enacting these laws, Turkiye aims to demonstrate its commitment to international standards and improve its financial standing globally.
Key Provisions
1. Licensing Requirements:
Licensing requirement is one of the biggest changes introduced by the bill as it affects all Crypto asset service providers (CASPs) Now all CASPs must register with the Capital Markets Board of Turkiye (CMB) and obtain a license to operate as a CASP in Turkiye. This ensures that only authorized entities can operate, enhancing transparency and security within the market.
The bill stipulates that operating as a crypto asset service provider (CASP) without the required permission is punishable by imprisonment for three to five years and a judicial fine of 5,000 to 10,000 days.
2. Investor Protection:
One of the critical aspects of the new law is the protection of customer assets. CASPs’ debts cannot result in customers’ crypto assets being seized, pledged, or included in bankruptcy estates, ensuring greater security for investors.
3. Foreign Exchanges:
While foreign exchanges are not banned, they must establish a local presence and obtain a license if they wish to operate in Turkiye. This move aims to ensure that all entities offering services in Turkiye adhere to the same regulatory standards.
4. Compliance with FATF Standards:
This legislation is a strategic move to comply with FATF requirements and potentially remove Turkiye from its “grey list,” thereby improving the country’s international financial standing.
5. Regulatory Definitions:
The bill introduces definitions for key terms such as “crypto asset,” “wallet,” “crypto asset service provider,” and “crypto asset custody service,” providing much-needed clarity to the market.
6. Operational Standards:
CASPs must demonstrate minimum internal controls, governance, and secure management to obtain and maintain their licenses. They are also required to conclude written contracts with customers, outlining clear terms and conditions of services provided, including dispute resolution mechanisms.
Impact and Future Outlook
The passage of this bill is not just a regulatory milestone but also a significant boost for investor confidence in Turkiye’s crypto market. By ensuring compliance with international standards and protecting investor interests, Turkiye is positioning itself as a more secure and attractive market for both local and international crypto investors.
Additionally, the bill includes provisions to protect customer funds from being seized or included in bankruptcy proceedings of CASPs, further enhancing investor security. Contrary to earlier expectations, the bill does not yet address specific tax regulations, however, it lays the groundwork for future legislation that may include tax provisions.
As we await the detailed secondary regulations expected within the next six months, this legislative development marks a new era for the Turkish cryptocurrency ecosystem. It aligns Turkiye more closely with global regulatory practices and signals a commitment to fostering a safer, more transparent, and investor-friendly crypto environment.
Stay tuned for more updates as we continue to monitor the implementation of these regulations and their impact on the market.
June 28, 2024