Crypto assets in Turkish Law
In our Country, crypto assets are defined for the first time in the regulation issued by the Central Bank of the Republic of Turkey (“the TCB”), i.e., “the Regulation on Not Using Crypto Assets in Payments (“the Regulation”)”, published in the Official Gazette on 16 April 2021.
Under this definition, crypto assets are regarded as “…intangible assets created virtually by using the distributed ledger technology or a similar technology and distributed through digital networks and not qualified as fiat money, bank money, electronic money, payment instrument, security or other capital market instrument”.
This newsletter provides information on the concept of crypto assets and the legal arrangements issued in Turkish Law with regard to crypto assets.
Crypto assets in legal aspects
In Turkey, crypto assets were first mentioned in a press release made by the Banking Regulation and Supervision Agency on 25.11.2013. The press release mainly states that: “In the recent period, it is observed that various news about “Bitcoin” emerged in some media and on the Internet.
As is known, “the Law on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions”, i.e., the Law numbered 6493 (“the Law”), entered into force as published in the Official Gazette dated 27.06.2013 and numbered 28690 …
… Bitcoin, known as a virtual currency which is not issued by an official or private institution and not provided a guarantee for its exchange, is not considered as an electronic money in respect of its structure and function under the scope of the Law and therefore its supervision or inspection does not seem possible within the framework of the aforesaid Law.
On the other hand, the fact that the identities of the parties in transactions carried out by means of Bitcoin and similar virtual currencies are not known creates an environment convenient for the use of these virtual currencies in illegal activities. Furthermore, in addition to risks such as excessive fluctuations in its market value, theft, loss of digital wallets, or unauthorized use without the knowledge of their owners, Bitcoin is also vulnerable to risks arising from abuse by malicious vendors or operational errors due to the irreversibility of transactions.”
It is pointed out that Bitcoin and coins with similar uses are not issued by official or private institutions, and that their use is risky and is not included in a supervision or inspection, due to the absence of legal ground and any equivalent one in law, etc.
Furthermore, the following similar statements are contained in the press release subsequently made by the Undersecretariat of Treasury on 11.01.2018:
“It is decided to establish a working group in order to develop legal arrangements regarding cryptocurrencies that have no legal basis in our Country. It is also decided to inform the public about the risks of cryptocurrencies. Cryptocurrencies do not have a legal basis in our Country and transactions carried out within this context are not under the guarantee of any official authority …”
However, different from the press release made by the Banking Regulation and Supervision Agency, the above press release implies the necessity to discover and research crypto assets and informs that a working group will be established.
Finally, the regulation issued by the Central Bank of the Republic of Turkey (“the TCB”), i.e., “the Regulation on Not Using Crypto Assets in Payments”, published in the Official Gazette dated 16 April 2021 and to be effective as of 30 April 2021, contains a definition of crypto assets and various provisions in respect of the matter. They will be addressed in detail below.
Evaluations within the scope of the newly issued Regulation on Not Using Crypto Assets in Payments
“The Regulation on not Using Crypto Assets in Payments (“the Regulation”)”, issued by the Central Bank of the Republic of Turkey, was published in the Official Gazette dated 16 April 2021 and entered into force on 30 April 2021.
The objective of the Regulation is to determine the principles and procedures on not using crypto assets in payments, on not using crypto assets directly or indirectly in the provision of payment services and in the issuance of electronic money, as well as the principles and procedures regarding payment and electronic money institutions not to act as intermediaries for platforms providing trading, storage, transfer or issuance services regarding crypto assets or for fund transfers that will be carried out through these platforms.
Intended for the implementation of the Regulation, the definition of crypto assets is contained in article 3/1 of the Regulation. Accordingly, the concept “Crypto Asset” is defined as:
“…intangible assets created virtually by using the distributed ledger technology or a similar technology and distributed through digital networks and not qualified as fiat money, bank money, electronic money, payment instrument, security or other capital market instrument”
Furthermore, the Regulation introduces provisions for not using crypto assets in the provision of payment services and in the issuance of electronic money. The following provisions are contained in article 4 of the Regulation: “Payment service providers are not entitled to develop business models under which crypto assets would be used directly or indirectly in the provision of payment services and the issuance of electronic money, and are not entitled to provide any services associated with such business models.
Payment and electronic money institutions are not entitled to act as an intermediary for any platforms providing services of trading, storage, transfer or issuance of crypto assets or for any fund transfers that would take place through these platforms.”
Thus, it is prohibited to use crypto assets directly as a means of payment.
Any direct or indirect use of crypto assets in the provision of payment services and issuance of electronic money is prohibited for the said intermediary institutions. This legal arrangement on crypto assets does not represent a total ban, however, makes the payment function of cryptocurrency, that is, the purchase of goods and services by means of cryptocurrencies over the Internet, illegal in the purchases and sales made within Turkey.
Therefore, the cases where the reliability of crypto assets are questioned due to the fact that they do not bear the characteristics of state-controlled fiat currencies, are not of an internationally accepted currency nature and are decentralized etc. render the issuance of these provisions necessary.
The concept “fiat money”, as the first characterization among the characterizations contained in the article of the Regulation, means national currency which is issued by states, under which there is a signature and which is built on the trust that the issued paper cannot be imitated. Fiat money is controlled by the state and the central bank.
On the other hand, crypto assets are decentralized ones. A second concept referred to in the Regulation, bank money, in other words deposit money, is the name assigned to money composed by banks. The Law on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions, i.e., the Law numbered 6493, enacted on 20.06.2013, defines electronic money (digital money, e-money) for the first time as follows:
“Monetary value issued on receipt of funds, stored electronically, used for the purpose of making payment transactions described in this Law and accepted as a payment instrument by natural and legal persons other than the electronic money issuer”
The same Law defines payment instrument as:
“Card, mobile phone, password and similar personal instruments determined by and between the payment service provider and user and used by the payment service user for giving payment orders”
The Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism (“the Amendment Regulation”) has been published in the Official Gazette numbered 31471 on 1 May 2021. Pursuant to this Regulation, “virtual asset service providers” are also regarded as an obliged party by the Financial Crimes Investigation Board (“MASAK”) under the Ministry of Treasury and Finance.
Groups defined as “obligated party” within the scope of the Regulation can generally be listed as banks, financing companies, payment institutions and capital market intermediary institutions. Thus, certain obligations imposed on these entities shall also apply to virtual asset service providers. It is possible to list some of these obligations as the obligation to keep information for customer identification, the obligation to monitor transactions, the obligation to report suspicious transactions and to obligation to provide information and documents.
Besides, virtual asset service providers shall carry out detailed identification during each transaction exceeding a certain amount, and suspicious transactions shall be reported to the Ministry of Treasury and Finance regardless of the amount.
The above Regulation does not define the term “virtual asset service provider”. However, this term was defined by the Financial Action Task Force (“FATF”) in June 2019. According to the definition made by the FATF of which Turkey is also a member since 1991, “virtual asset service provider” means:
“…persons who, as a business, exchange between virtual assets and fiat currencies, exchange between one or more forms of virtual assets, transfer virtual assets, conduct safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets, etc. on behalf of or for a natural or legal person”
However, it is not yet possible to say that this definition made by the FATF is regulated by law accepted in Turkish Law.
Cryptocurrencies, which did not priorly have any definitive equivalent in Turkish Law, were first defined by the “Regulation on Not Using Crypto Assets in Payments” in our Country, with the increase in their worldwide use and recognition.
Before the Regulation came into force, it was possible to use cryptocurrencies in various sectors as a means of payment throughout the Country; however, after 01.05.2021 when the Regulation entered into force, it is prohibited to use crypto assets as a means of payment.
Besides, another legal arrangement for crypto service providers is introduced by the Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism, published in the Official Gazette on 1 May 2021. Pursuant to this Regulation, virtual asset service provides are also regarded as an obliged party by the Financial Crimes Investigation Board under the Ministry of Treasury and Finance.
Furthermore, virtual asset service providers shall carry out detailed identification during each transaction exceeding a certain amount, and suspicious transactions shall be reported to the Ministry of Treasury and Finance regardless of the amount.