INFORMATION NOTE ON THE PROPOSAL LAW ON AMENDMENT OF THE CAPITAL MARKET LAW

The Bill of Law on Amendments to the Capital Markets Law, also known as the Crypto Asset Law (“Bill of Law”), was submitted to the Turkish Grand National Assembly on 16.05.2024. The important issues included in this Bill will be discussed below.

I. Regulations Regarding Crypto Asset Service Providers and Crypto Assets
• The establishment and commencement of activities of crypto asset service providers (“Service Providers”) are subject to the permission of the Capital Markets Board (“Board”). According to the proposal, the Board will determine the principles regarding the establishment, commencement of activities, partners, capital and capital adequacy, information systems and technological infrastructures, share transfers (Board permission is mandatory), temporary or permanent suspension of activities and the principles and guidelines to be followed during activities of the Service
Providers.

• The minimum conditions that Service Provider partners and managers must meet have been regulated. In short, these are; not to be bankrupt or to have declared composition, not to have a share of ten percent or more directly or indirectly in bankers subject to liquidation, factoring, financial leasing, payment service providers and institutions operating in money and capital markets whose operating licenses have been canceled except for voluntary liquidation, not to have committed the crimes listed in the Proposal, not to be prohibited from trading,
to have the necessary financial strength and reputation and to have a transparent partnership structure.

Financial strength and reputation conditions are not mandatory for managers. In the event that partners lose the above-mentioned qualifications, they must transfer their shares within 6 (six) months. The Board decides who will manage the shares within the 6 (six) month period.

• Platforms located abroad engaging in activities targeting Turkish residents or offering a prohibited activity related to crypto assets to Turkish residents within the scope of regulations to be made by the Board are also considered unauthorized crypto asset service provision. In the event that any of the following situations exist: opening a business in Türkiye, creating a Turkish website, or engaging in promotional and marketing activities regarding crypto asset services offered directly and/or through persons or institutions located in Türkiye by platforms located abroad, the activities are considered to be targeting Turkish residents.

• In all transactions involving crypto assets, the provisions of the Law on the Protection of the Value of Turkish Currency and related legislation shall apply.

One percent of the annual income of the Service Provider platform of the previous year shall be paid to the Board and one percent shall be paid to the TUBITAK budget.

II. Regulations Regarding the Activities of Service Providers and Transfer of Crypto Assets
• Contracts signed between the Service Provider and the customer will be executed through the information or electronic communication device determined by the Board and will be established by verifying the customer’s identity. Contracts that remove or limit the Service Provider’s liability to the customer are invalid.
• It is essential that customers keep their own crypto assets in their own wallets. If they do not prefer to keep them in their own wallets, they must be kept by banks and institutions approved by the Banking Regulation and Supervision Board.

III. Regulations Regarding Measures to be Applied in the Case of Unlawful Activities of Service Providers
• In the case of unlawful activities of the Service Provider, the Board has all kinds of authority such as; eliminating the unlawfulness, limiting the scope of activity of the Service Provider, temporarily suspending it, imposing administrative fines
or canceling the activity permit of the Service Provider.
• The Board is authorized to temporarily or permanently cancel the licenses of the managers and employees who are determined to be responsible for unlawful activities or transactions, to limit or remove their signature authorities from the decision to file a criminal complaint against them until the conclusion of the trial, to dismiss the board members whose responsibility in unlawful acts or transactions is determined by a court decision, and to appoint new ones in their place until the first general assembly meeting to be held.

IV. Sanctions and Personal Liability
• Crypto asset service providers are responsible for the transactions shared below. If the damage cannot be compensated by the Service Provider or it is clear that it cannot be compensated, the personal liability of the Service Provider’s board of directors, members, other members, and real person partners who have legally or de facto management or control may be limited to the damage they have caused to customers:

(I) Damages arising from failure to fulfill cash payment and/or crypto asset delivery obligations,
(II) Losses of crypto assets arising from acts such as the operation of information systems of crypto asset service providers, any kind of cyber attack,
information security violations or any kind of behavior of the personnel.

• It has been regulated that the chairman and members of the board of directors and other members who commit embezzlement due to their duty at the Service Provider, and the real person partners who have legally or de facto management and control of the Service Provider whose operating license has been revoked, will be sentenced to imprisonment and judicial fines and will be sentenced to compensate the damages of the Service Provider.

V. Transitional Provisions
• As of the effective date of the proposal, existing Service Providers must apply with the documents to be determined by the Board within 1 (one) month or obtain a liquidation decision within 3 (three) months.
• Service Providers located abroad will cease their activities towards persons located in Turkey within 3 (three) months as of effective date.
• The activities of ATMs and similar electronic transaction devices located in Turkey that enable customers to convert crypto assets into cash or cash into crypto assets and to transfer crypto assets will be terminated within 3 (three) months as of effective date.