Analysis of the Development of the Turkish Crypto Assets Market and New Regulatory Policies

In recent years, Turkey has played an important role in the global Crypto Assets market, becoming the fourth largest Crypto Assets trading market in the world, behind the United States, India, and the United Kingdom. This phenomenon is mainly due to the country's economic instability and currency devaluation issues. Faced with high inflation and the continuous weakening of the national currency, an increasing number of Turkish citizens view Crypto Assets as an important tool for hedging economic risks and preserving value.

On August 23, affected by high domestic inflation and other factors, the Turkish lira's exchange rate against the US dollar fell below 34 to 1, setting a new historical low. On that day, in the foreign exchange market, the lira's exchange rate against the US dollar once dropped to 34.049 to 1, and then slightly rebounded. According to reports, since the beginning of this year, the Turkish lira has depreciated by about 15.2% against the US dollar.

Despite the large scale of Turkey's Crypto Assets market, it has long lacked a clear regulatory framework, leaving the country's Crypto Assets industry in a legal gray area. Although the Central Bank of Turkey issued a ban in 2021 prohibiting the use of cryptocurrencies like Bitcoin for payments, this measure has not been able to thoroughly regulate the entire market. With the growing global focus on the regulation of Crypto Assets, Turkey has also begun to gradually strengthen its management of this field.

Turkey's Crypto Regulation Clarification

The "Capital Markets Law Amendment" passed by the Turkish Parliament in June this year and effective in July has attracted widespread attention from the crypto industry. The country's Capital Markets Board (CMB) emphasizes that the legislation establishes a preliminary regulatory framework for crypto asset service providers in Turkey. The main contents include:

1. The CMB is designated as the regulatory authority for the crypto assets industry, with the power to authorize operations, supervise, impose sanctions, and take measures.
2. Establish criminal responsibility for unauthorized operation of encryption businesses, misappropriation of user assets, and fraud.
3. The trading platform must establish a monitoring system to identify, prevent, restrict, and report market manipulation and security events.

Currently, even in the absence of a comprehensive Crypto Assets regulatory system, Turkey's existing regulations still have a certain degree of oversight over the market, including the central bank's prohibition on using Crypto Assets for payments, as well as the Financial Crimes Investigation Board (MASAK) requiring exchanges to collect KYC data to maintain anti-money laundering measures, etc.

Turkey's Finance Minister Mehmet Simsek has revealed that a more comprehensive encryption regulatory bill has reached its final assessment stage, which is said to provide clear legal guidelines for operators such as "encryption wallets, Crypto Assets service providers, and Crypto Assets custodians."

Detailed Explanation of the Capital Market Law Amendment

On July 2, 2024, the Turkish government officially passed the No. 7518 "Amendment to the Capital Markets Law," establishing a clear legal framework for the operation of Crypto Assets service providers (CASPs). This marks the entry of Turkey's Crypto Assets market into a new era of compliance.

Background of the amendment issuance

Since 2021, Turkey has been placed on the FATF gray list due to money laundering risk issues. To overcome this unfavorable situation and clarify the taxation policy for Crypto Assets, Turkey has started to strengthen its regulatory efforts in this field. Now, 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.

Key Points of the New Regulations by the Capital Markets Commission (CMB)

1. Incorporate regulations for Crypto Asset Service Providers (CASPs) into the legislative framework.
2. All Crypto Assets service providers must obtain permission from the CMB and comply with the standards set by TUBITAK.
3. Activities related to banks need to obtain approval from the banking regulatory and supervisory authority (BDDK).

Crypto Assets platform establishment conditions

1. The platform should be established as a joint-stock company with a minimum paid-in capital of 50 million Turkish Lira.
2. All shares shall be issued in cash and registered.
3. Founders and managers must comply with the provisions of capital market laws and other relevant regulations, possessing sufficient economic strength, honesty, and trustworthiness.
4. The scope of operations of the Crypto Assets platform should be clear, covering activities such as purchasing, selling, initial issuance, distribution, clearing, transfer, and custody.

Transition and Settlement of Platform Operations

1. Crypto asset service providers currently operating in Turkey must submit the required documents to the CMB within one month.
2. Companies that fail to submit their applications must make a liquidation decision within one month.
3. Temporary operating platforms must submit their platform operating license applications by November 8, 2024, otherwise they will face withdrawal.
4. During the transition period, a total of 76 exchanges were granted temporary licenses to continue operations, while 8 exchanges that failed to meet the conditions were required to withdraw.

Regulatory and Penalty Measures

1. Individuals and institutions engaged in Crypto Assets services without authorization will face imprisonment of 3 to 5 years and fines ranging from 5,000 to 10,000 days.
2. The act of misappropriating entrusted funds or assets can result in a maximum sentence of 14 years in prison and substantial fines.
3. Criminals involved in fraudulent activities to conceal embezzlement will face 14 to 20 years of imprisonment and a fine of up to 20,000 days.
4. Individuals who illegally use the resources of a revoked license Crypto Assets service provider will face up to 22 years in prison and fines of 20,000 days.

The Impact and Outlook of Regulatory Frameworks

The implementation of the "Capital Markets Law Amendment" will have a profound impact on Turkey's Crypto Assets market:

1. Enhance market trust and stability: By implementing strict regulatory standards to improve market transparency and accountability, it helps to prevent misconduct and lays the foundation for long-term market stability.

2. Promote compliance and standardized development: Requiring Crypto Assets service providers to obtain CMB licenses and adhere to strict standards will drive the standardized development of the industry and eliminate non-compliant participants.

3. Attracting international companies to participate: Several internationally renowned exchanges have applied for licenses, demonstrating the appeal of the Turkish market to international companies, which may bring more advanced technologies and services.

4. Strengthening Regulatory Measures and Market Integration: Strict regulatory standards and penalties help to eliminate illegal activities in the market and promote healthy market development.

5. Market Growth Potential: As the world's fourth largest Crypto Assets trading country, Turkey's market may welcome new growth opportunities under the new regulatory framework.

The "Capital Markets Law Amendment" brings new order and regulations to Turkey's Crypto Assets market, while laying a solid foundation for its future development. With more enterprises participating and the market gradually maturing, Turkey's Crypto Assets market is expected to usher in a new round of prosperity.