The Rise of the Turkish Crypto Assets Market and Analysis of New Regulatory Policies

In recent years, Turkey has played an increasingly important role in the global Crypto Assets market. Data shows that the country has become the fourth largest Crypto Assets trading market in the world, after the United States, India, and the United Kingdom.

The enthusiasm of the Turkish people for Crypto Assets mainly stems from the country's economic instability and currency devaluation issues. In the face of high inflation and the continued weakening of the lira, more and more Turks are viewing Crypto Assets as an important tool for hedging economic risks and preserving value.

On August 23 this year, affected by factors such as high domestic inflation, the exchange rate of the Turkish lira against the US dollar fell below 34 to 1, reaching a historical low. According to reports, the exchange rate of the Turkish lira against the US dollar has dropped by approximately 15.2% since the beginning of this year.

Despite the large scale of Turkey's Crypto Assets market, there has been a lack of a clear regulatory framework for many years, 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. As global attention to the regulation of Crypto Assets increases, Turkey has also begun to gradually strengthen its management of the sector.

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 this amendment establishes a preliminary regulatory framework for crypto assets service providers in Turkey. The main contents include:

1. Designate the CMB as the regulatory body for the crypto assets industry, granting it the authority to operate, supervise, impose sanctions, and take measures.

2. Establish criminal responsibilities for unauthorized operations of crypto assets, misappropriation of user assets, and fraud.

3. Require trading platforms to establish monitoring systems to identify, prevent, restrict, and report market manipulation and security incidents.

Currently, even in the absence of a comprehensive Crypto Assets regulatory framework, Turkey's existing regulations still exert a certain level of oversight on the market. This includes 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, among others.

Turkey's Finance Minister Mehmet Simsek has revealed that a more comprehensive encryption regulatory bill has entered the final evaluation stage, which is expected to provide clear legal grounds for operators such as crypto wallet providers, crypto assets service providers, and crypto assets custodians.

Interpretation of the New Amendment to the Capital Market Law

On July 2, 2024, the Turkish government officially passed the Capital Markets Law Amendment No. 7518, establishing a clear legal framework for the operation of Crypto Assets service providers (CASPs), marking the entry of Turkey'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 get out of this unfavorable situation and clarify the taxation policy for Crypto Assets, Turkey has begun to increase regulatory efforts in this area. Now, Turkey has successfully been removed 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 a license from CMB and comply with the standards set by TUBITAK.
2. Activities related to banks also require approval from the banking regulatory and supervisory authority ( BDDK ).
3. The Crypto Assets platform must be established as a joint-stock company, with a minimum paid-in capital of 50 million Turkish Lira.
4. Founders and managers must comply with the provisions of capital market laws and other relevant regulations.
5. The business scope 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 the required documents to the CMB within the specified time frame. Companies that fail to submit their applications must make a liquidation decision. Currently, 76 exchanges have been granted temporary licenses to continue operations, while 8 exchanges that did not meet the conditions have been asked to withdraw.

Regulatory and Penalty Measures

The new regulations impose severe penalties on individuals and institutions engaging in Crypto Assets services without authorization, including imprisonment and hefty fines. More severe penalties will be faced for serious illegal acts such as embezzlement of entrusted funds or assets, and fraud.

The Impact and Prospects of Regulatory Frameworks

The introduction of the "Capital Markets Law Amendment" marks a key step for Turkey in the regulation of Crypto Assets. This amendment establishes a clear legal framework for Crypto Assets service providers, making the operation of the Crypto Assets market more standardized and transparent.

1. Enhance market trust and stability: Strict regulatory standards will improve market transparency and accountability, helping to prevent improper conduct and laying the foundation for long-term market stability.

2. Promote compliance and standardized development: Requiring CMB approval will promote the standardized development of the industry and eliminate non-compliant market 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. Strengthen regulatory efforts: Strict regulatory standards and severe penalties will help 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" not only brings new order and regulations to Turkey's Crypto Assets market but also lays a solid foundation for its future development. As more enterprises participate and the market gradually matures, Turkey's Crypto Assets market is expected to usher in a new round of prosperity.