The Rise of the Turkish Crypto Assets Market: An Analysis of the New Regulatory Framework

In recent years, Turkey has played an increasingly important role in the global Crypto Assets market. According to statistics, the country has jumped to become the fourth largest Crypto Assets trading market in the world, behind only the United States, India, and the United Kingdom.

The enthusiasm of the Turkish people for Crypto Assets stems from the economic instability and currency depreciation issues in the country. In the face of high inflation and the continued weakening of the lira, many Turks view Crypto Assets as an important tool for hedging economic risks and preserving value.

On August 23, influenced by factors such as high domestic inflation, the Turkish lira's exchange rate against the US dollar fell below 34 to 1, reaching a historic low. Reports indicate that since the beginning of this year, the Turkish lira's exchange rate against the US dollar has dropped by approximately 15.2%.

Despite the large scale of Turkey's Crypto Assets market, there has long been a lack of a clear regulatory framework, leaving the industry in a legal gray area. Although the Central Bank of Turkey issued a ban in 2021 prohibiting the use of Bitcoin and other Crypto Assets for payments, this measure has not fully regulated the market. With the increasing global focus on the regulation of Crypto Assets, Turkey has also begun to gradually strengthen its management of this field.

New Developments in Turkey's Crypto Regulation

The capital markets law amendment passed by the Turkish parliament in June this year and took effect in July has attracted widespread attention in the industry. The country's Capital Markets Board (CMB) emphasized that this amendment establishes a preliminary regulatory framework for Turkey's Crypto Assets service providers. The main contents include:

1. Designate the CMB as the regulatory agency for the encryption industry, granting it the authority to operate, supervise, sanction, and take measures.
2. Establish criminal liability for unauthorized operation of crypto businesses, misappropriation of user assets, and fraudulent activities.
3. Require the trading platform to establish a monitoring system to identify, prevent, restrict, and report market manipulation and security incidents.

Although a comprehensive Crypto Assets regulatory system has not yet been implemented, the current regulations in Turkey already impose certain constraints on the market. For example, the central bank prohibits the use of Crypto Assets for payments, and the Financial Crimes Investigation Board (MASAK) requires exchanges to collect KYC data to maintain anti-money laundering measures, among other things.

The Turkish Finance Minister has revealed that a more comprehensive encryption regulatory bill has entered the final evaluation stage, which is expected to provide clear legal basis for operators such as crypto wallet providers, Crypto Assets service providers, and custodians.

Interpretation of the Capital Market Law Amendment

On July 2, 2024, the Turkish government officially passed the 7518th Amendment to the Capital Markets Law, establishing a clear legal framework for the operation of Crypto Assets service providers (CASPs), marking the entry of the country's Crypto Assets market into a new era of compliance.

background

Since 2021, Turkey has been placed on the FATF gray list due to money laundering risk issues. To escape this unfavorable situation and clarify the taxation policy for Crypto Assets, Turkey has intensified its regulatory efforts in this field. Currently, Turkey has successfully removed itself from the gray list, and a new regulatory framework has been introduced, laying the foundation for the standardized development of the Crypto Assets market.

main content

1. All Crypto Assets service providers must obtain CMB approval and comply with the standards set by TUBITAK.
2. Activities related to banks must obtain approval from the banking regulatory and supervisory authority (BDDK).
3. The Crypto Assets platform should be established as a joint-stock company, with a minimum paid-in capital of 50 million Turkish Lira.
4. The platform founders and managers must comply with relevant legal regulations and possess sufficient financial strength, honesty, and credibility.
5. The scope of operation of the Crypto Assets platform should be clearly defined, covering activities such as purchasing, selling, initial issuance, distribution, clearing, transfer, and custody.

Transition and Settlement

The new regulations require existing Crypto Assets service providers to submit relevant documents to the CMB within the specified time frame. Companies that fail to submit their applications must make liquidation decisions. Currently, 76 exchanges have obtained temporary operating licenses, while 8 exchanges that did not meet the conditions have been asked to withdraw.

Penalty Measures

The new regulations impose severe penalties for violations:

• Individuals and institutions engaging in Crypto Assets services without authorization will face 3 to 5 years of imprisonment and heavy fines.
• The act of misappropriating entrusted funds or assets can result in a maximum sentence of 14 years in prison.
• Criminals involved in fraudulent activities to cover up embezzlement will face 14 to 20 years of imprisonment.
• Individuals who illegally utilize the resources of service providers with revoked licenses for Crypto Assets can be sentenced to a maximum of 22 years in prison.

The Impact and Prospects of Regulatory Frameworks

The introduction of the "Capital Markets Law Amendment" has brought multiple impacts to the Turkish Crypto Assets market:

1. Enhance market trust and stability: By implementing strict regulatory standards, market transparency and accountability have been improved.
2. Promote compliance and standardized development: Require licensing and adherence to strict standards to facilitate industry standardization.
3. Attracting international companies to participate: Many internationally renowned exchanges have applied for licenses, demonstrating market attractiveness.
4. Increase regulatory efforts: Severe penalties help to clean up illegal activities in the market.
5. Unleashing Market Growth Potential: A clear legal framework provides market participants with a more stable development environment.

With the implementation of the Capital Markets Law Amendment, Turkey's Crypto Assets market is expected to usher in new development opportunities, laying a solid foundation for its future prosperity.