Interpretation of Turkey's Cryptocurrency Regulation Policy "Amendment to the Capital Market Law"

Source: Beosin

In recent years, Turkey has become an important player in the global Crypto Assets market with its massive Cryptocurrencyvolume. According to statistics, Turkey has become the world's fourth largest Cryptocurrency trading market, following closely behind the United States, India, and the United Kingdom.

The enthusiasm of the Turkish people for Crypto Assets stems from the country's economic instability and currency depreciation. Faced with high inflation and the continued weakening of the lira, more and more Turkish people regard Crypto Assets as an important tool for hedging economic risks and preserving value.

• During the period from the end of 2020 to the end of 2023, the Turkish lira depreciated by more than 300% (Image Source: Kaiko**).

On August 23, due to factors such as high domestic inflation, the Turkish lira fell to a new historic low against the US dollar, breaking the 34:1 Exchange Rate on the 23rd. On that day, the lira fell to as low as 34.049 against the US dollar in the Turkish forex market before slightly rebounding. According to local media reports, the Turkish lira has fallen by about 15.2% against the US dollar this year.

Although the cryptocurrency market in Turkey is huge, it has lacked a clear regulatory framework for many years, keeping the country's cryptocurrency industry in a legal gray area.

Despite the ban imposed by the Central Bank of the Republic of Turkey in 2021, which prohibits the use of cryptocurrencies such as BTC for payment, this measure has not completely standardized the entire market. As global regulation of cryptocurrencies is becoming increasingly important, Turkey is also gradually strengthening its management of the field.

Turkey encryption regulation clarification

The amendment to the Capital Market Law passed by the Turkish Parliament in June and effective from July has sparked widespread follow-up in the encryption industry. The Capital Market Board (CMB) of the country emphasizes that it has established a preliminary regulatory framework for encryption asset service providers in Turkey. Specific includes:

1. CMB is designated as the encryption industry regulatory unit, with the authority to authorize operation, supervise, sanction, and take measures.

2. Determine the criminal responsibility for unauthorized operation of encryption business, misappropriation of user assets, fraud and other criminal activities.

3. The trading platform needs to establish a monitoring system to identify, prevent, restrict, and report market manipulation and security incidents.

Currently, even without a comprehensive Cryptocurrency regulatory system, the existing regulations in Turkey still have a certain degree of regulatory impact on the market, including the Central Bank of the country's ban on the use of Cryptocurrency for payment, and the Financial Crimes Investigation Board (MASAK) requiring exchanges to collect KYC data to maintain anti-Money Laundering measures.

However, Turkish Finance Minister Mehmet Simsek also revealed earlier this year that a more comprehensive encryption regulatory bill has reached the final evaluation stage, which is said to provide clear legal sources for "encryptionWallet, encryption asset service providers, encryption asset custodians," and other operators.

Policy Interpretation: New Revised "Capital Market Law Amendment"

On July 2, 2024, the Turkish government officially passed Amendment No. 7518 to the Capital Market Law, establishing a clear legal framework for the operation of Crypto Assets Service Providers (CASPs). This revision marks a new era of compliance for the Turkish cryptocurrency market.

I. Turkey: Background of the Amendment to the Capital Market Law

Since 2021, Turkey has been included in the FATF grey list due to Money Laundering risks. In order to overcome this unfavorable situation and clarify the taxation policy for Crypto Assets, Turkey has started to strengthen regulation in this field. Now, Turkey has successfully been removed from the grey list, and a new regulatory framework has been introduced, laying the foundation for the standardized development of the Crypto Assets market.

2. Introduction of new regulations by the Capital Market Committee (CMB)

On July 2, 2024, the Capital Market Board of Turkey (CMB) officially announced Amendment No. 7518 to the Capital Market Law, bringing the regulation of Crypto Assets Service Providers (CASPs) into the legislative scope. This marks a new stage in the regulation of Cryptocurrency in Turkey, requiring all CASPs to obtain CMB's approval and comply with the standards set by TUBITAK. In addition, activities related to banks also require approval from the Banking Regulation and Supervision Agency (BDDK). These regulations not only strengthen supervision but also provide guarantees for the healthy development of the encryption asset industry.

Three, establishment conditions of the encryption asset platform

According to the new regulations, the establishment of encryption asset platforms must meet the following conditions:

1. The platform should be established as a limited liability company, with a minimum paid-in capital of 50 million Turkish lira.

*2. All shares shall be issued and registered in cash.

*3. Founders and managers must comply with the Capital Market laws and other relevant laws, and have sufficient economic strength, honesty, and trustworthiness.

*4. The business scope of the encryption asset platform should be clear, covering activities such as purchasing, selling, initial issuance, distribution, clearing, transfer, and custody. *

4. Transition and Liquidation of Platform Operations

The new regulations require that encryption asset service providers currently operating in Turkey must submit the required documents to the CMB within one month, and companies that fail to submit the application must make a liquidation decision within one month. Temporary operating platforms must submit a platform operation license application before November 8, 2024, otherwise they will face eviction.

During the transition period, a total of 76 exchanges have obtained temporary licenses to continue operations and are required to comply with the requirements of the new regulations. At the same time, 8 exchanges that failed to meet the conditions have been required to exit.

5. Strict Regulation and Penalty Measures

The new regulations establish severe penalties for individuals and institutions engaging in encryption asset services without authorization. Individuals and legal persons who violate the regulations will face imprisonment for 3 to 5 years and a fine of 5000 to 10000 days. Misappropriation of entrusted funds or assets will result in even more severe penalties, with a maximum sentence of 14 years in prison and a substantial fine.

For criminals involved in fraudulent activities to cover up misappropriation, they will face 14 to 20 years of imprisonment and a maximum fine of 20000 days. In addition, individuals who illegally use resources of encryption asset service providers with revoked licenses will also face a maximum of 22 years of imprisonment and a fine of 20000 days.

The Impact and Prospects of Regulatory Framework

The amendment to the Capital Market Law marks a crucial step for Turkey in the regulation of Crypto Assets. This amendment establishes a clear legal framework for encryption asset service providers (CASPs), making the operation of the Crypto Asset market more standardized and transparent.

Enhanced Market Trust and Stability: The amendment introduces higher transparency and accountability to the cryptocurrency market through the establishment of strict regulatory standards. This not only helps to increase investor trust in the market, but also prevents improper behavior, laying the foundation for the long-term stability of the market.

Promoting the development of Compliance and standardization: The amendment requires encryption asset service providers to obtain a license from the CMB and comply with strict operational standards. This requirement will promote the standardization development of the industry, eliminate non-Compliance market participants, and encourage more Compliance enterprises to participate in market competition.

International companies' get on board and competition: After the amendment was issued, several well-known international exchanges have applied for licenses, demonstrating the attractiveness of the Turkish market to international companies. This trend may intensify market competition and bring more advanced technology and services, further promoting the development of the Turkish encryption market.

Increased regulatory efforts and market integration: The amendment not only establishes stricter regulatory standards, but also imposes severe penalties for illegal activities. This will help clean up illegal activities in the market, promote a healthier and more transparent market, and attract more legitimate businesses to participate.

The Potential Rise of the Market: Turkey is the fourth largest country in terms of Cryptocurrency trading. With the implementation of this amendment, the Cryptocurrency market may have new opportunities for growth. Benefiting from a clearer legal framework, participants in the Turkish market will have the opportunity to develop and expand their businesses in a more stable environment.

The "Capital Market Amendment" not only brings new order and norms to Turkey's Cryptocurrency market, but also lays a solid foundation for its future development. With the participation of more enterprises and the gradual maturity of the market, the Turkish Cryptocurrency market is expected to usher in a new wave of prosperity.