As a result of the expanding adoption of blockchain technologies worldwide, lawmakers seek to introduce regulatory frameworks to compete in the ever-fast-growing field, particularly when it comes to crypto assets. As these assets spark debates in the financial world and among regulators, some countries’ lawmakers adopt regulations to define their legal status, whereas others choose to remain silent.
For the past few years, Turkiye has ranked at the top in terms of the number of crypto transactions, with an increasing crypto asset adoption rate among citizens. Despite the considerable number of crypto users in the country, lawmakers have not yet introduced an exhaustive regulatory framework to govern crypto assets. Yet, there have been some regulatory activities by competent authorities to guide both crypto users and crypto service providers. Accordingly, The Regulation Prohibiting Payments with Crypto Assets published by the Central Bank of the Republic of Turkiye (Regulation) as the only piece of legislation that directly governs crypto assets defines crypto assets as a type of intangible property that does not qualify as fiat money, dematerialized money, e-money, payment instrument, security, or any other capital market instrument, and prohibits the utilization of crypto assets in payments either directly or indirectly. It also brings additional restrictions for payment service providers, payment institutions, and e-money institutions on their activities involving crypto assets. Even though the Regulation introduces a definition for crypto assets, due to the absence of a comprehensive legislative framework, debate on their actual legal status continues.
Prior to the Regulation, the Banking Regulation and Supervision Agency (BRSA) stated in an announcement in 2013 that Bitcoin does not fall under e-money regulations. Although this announcement only covered Bitcoin, it was interpreted as the BRSA wishing to exclude all crypto assets from its own authority, therefore leaving the crypto assets under the supervision of a different regime. However, considering that there are no legal frameworks explicitly stating the opposite, it is important to note that the regulations that fall under the supervision of BRSA (e.g., banking activities) may be applicable to certain types of transactions.
The same could be said for the jurisdiction of the Capital Markets Board (CMB). Although the Regulation states that a crypto asset itself is not a security, certain transactions relating to crypto assets may be restricted under capital markets laws. For example, the CMB explicitly states in its Resolution No. 47/1102 that, even though in principle, Initial Coin Offerings (ICOs) do not directly fall under the scope of CMB’s supervision, depending on their nature, ICOs may have similarities to initial public offerings (IPOs) or crowdfunding activities, and in that case, ICOs may fall under the scrutiny of the CMB.
Considering the foregoing, although the trading of crypto assets is not prohibited in Turkiye, some products offered by crypto service providers – such as lending, earning, de-fi, and derivate products – may fall under the supervision of the BRSA and/or CMB; therefore, a legal assessment should be performed for each product to determine any legal obligations that may be applicable.
Even though some of the authorities refrain from directly regulating crypto assets and related actors, the Financial Crimes Investigation Board (FCIB) has no hesitations. While the actual legal status of crypto assets and the regime that they are subject to are still unclear in Turkiye, the obligations that crypto assets service providers are to fulfill under anti-money laundering and counter-terrorist financing regulations are beyond any doubt.
Undoubtedly, exhaustive legislation governing crypto assets is very much needed in Turkiye to clarify uncertainties. Considering the recent legal developments around the world, especially the European Union’s comprehensive Markets in Crypto Assets Regulation and the summary judgment regarding the SEC v. Ripple case, it is understood that crypto assets’ legal aspect has come into prominence following their years-long domination of the financial agenda worldwide. As mentioned in the development plans published by the government and with the triggering impact of the legal progress in other jurisdictions, Turkiye is also likely to enact such legislation in the upcoming years. Lastly, it is noteworthy to say that the Turkish market is already extremely attractive for crypto service providers due to the residents’ interest in crypto investments, and the envisaged legislation is expected to ease the compliance process for the already existing actors.
By Ayse Ulku Solak Yalaz, Partner, and Dilara Zeynep Girgin, Associate, Nazali Tax & Legal
This article was originally published in Issue 10.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.