Regulation on Not Using Crypto Assets in Payments
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”)” is published in the Official Gazette dated 16 April 2021 and will enter into force on 30 April 2021.
This newsletter explains the provisions brought by the Regulation in relation to use of crypto assets.
Definition of crypto asset within the scope of the Regulation
As intended for the implementation of the Regulation, the definition regarding crypto assets is contained in the article 3/1 of the Regulation and the concept “Crypto Asset” is defined as follows:
“…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”
Pursuant to this definition, intangible assets created virtually by using the distributed ledger technology or a similar technology and distributed through digital networks are considered as crypto assets.
However, fiat money, bank money, electronic money, payment instrument, security or other capital market instruments do not fall under and are excluded from the definition of crypto asset.
Prohibition to make payments by means of crypto assets
As per the provision brought by the Regulation, crypto assets shall no longer be used directly or indirectly in payments. Furthermore, no service shall be provided for use of crypto assets directly or indirectly in payments.
This matter is set forth by the paragraphs 2 and 3 under the article 3 in the Regulation, and these paragraphs are as follows:
“…(2) Crypto assets shall not be used directly or indirectly in payments.
(3) No service shall be provided for use of crypto assets directly or indirectly in payments.”
Prohibitions imposed on Banks and Fintechs
As per the provision brought by the Regulation, the institutions shall not be allowed to act as an intermediary for the platforms that provide “trading, storage, transfer or issuance services” regarding crypto assets and for fund transfers that would be made to these platforms. Within this context, following the entry into force of the Regulation, no fund transfers shall be made through the platforms that provide intermediary services for trading of crypto assets.
The relevant article 4 of the Regulation is as follows:
“(1) 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.
(2) 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.”
It is crucial to state that the prohibition on developing business models for crypto assets and providing services associated with such business models covers banks and Fintechs. On the other hand, the prohibition on transfer of funds to or from crypto exchanges covers Fintechs only.
Consequently, banks are not included in the scope of the above prohibition regarding funds. After 30 April 2021 when the Regulation will enter into force, such fund transfers may only take place through the channel of the banks allowing the transfer.
Since the purchase and sale of crypto money is not prohibited, these transactions can be continued
Unlike what is perceived, the Regulation does not prohibit the purchase and sales of crypto assets. As a matter of fact, the Regulation prohibits the provision of services for the direct or indirect use of crypto assets in payments. In fact, the matter set out under the Regulation is the prohibition of purchase of a product or service by means of crypto assets. Furthermore, the services for the direct or indirect use of crypto assets in payments may not be provided after 30 April 2021 when the Regulation will enter into force.
Thus, “prevention of using cryptocurrencies in payments” is emphasized in the statements made by the TCB on in its official website. While it is pointed out that various attempts to use these crypto assets have recently started to occur in payment transactions, it is stated that the uses of these assets in payments are likely to cause irreparable grievances for the parties of the transactions and that they are considered to contain factors which may create a weakness of trust in the methods and instruments currently used in this field.
Another article in the Regulation that will enter into force as of 30 April 2021 is for payment service providers, which is the prohibition of developing any business model under which crypto assets will be used directly or indirectly while providing payment services and in issuing electronic money. It is definitively determined that no service shall be provided by means of such a business model.
The concept of “payment services” in general
It is useful to briefly explain the concept of payment services in the light of these provisions.
“The Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (“the Law”)” introduces a definition for the concept of payment services. As per the article 12 of the Law, payment services refer to:
a) All the transactions necessary to operate a payment account, including the services enabling cash to be deposited in and withdrawn from a payment account,
b) Conducting payment transactions, including transfers of funds on a payment account with the user’s payment service provider, direct debits, including one-off direct debits, payment transactions through a payment card or a similar device, credit transfers, including standing orders,
c) Issuance or acquisition of payment instruments,
ç) Money remittance,
d) Conducting payment transaction where the consent of the payer to execute a payment transaction is granted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator that acts only as an intermediary between the payment service user and the goods and services provider,
e) Services for intermediating invoice/bill payments,
f) At the request of the payment service user, the payment order initiation service provided in relation to the payment account at another payment service provider,
g) Provided that the approval of the payment service user is obtained; the service for provision, on online platforms, of the consolidated data about the payment service user’s one or more than one payment account held at payment service providers,
ğ) Other transactions and services that reach the level to be determined by the Bank in terms of total size or impact in payments.
In this context, it will also be useful to consider this definition while evaluating the prohibitions imposed on payment services in the Regulation.
In conclusion, within this scope, pursuant to the Regulation issued by the Central Bank of the Republic of Turkey and published in the Official Gazette, crypto assets shall not be used directly and indirectly in payments and no service shall be provided for use of crypto assets directly or indirectly in payments. The Regulation will enter into force on 30 April 2021.
Pursuant to the Regulation in which the concept of crypto asset is also defined, the prohibition of developing business models and providing services is imposed on payment and electronic money institutions. This prohibition of developing business models for crypto assets and providing services associated with such business models covers banks and Fintechs. However, the prohibition regarding crypto exchanges or transfer of funds through crypto exchanges covers Fintechs only. Within this context, banks are not included in the scope of the above prohibition regarding funds. After 30 April 2021 when the Regulation will enter into force, such fund transfers may only take place through the channel of the banks allowing the transfer.
It should be noted that there is no prohibition on investing in crypto assets under the Regulation; however, crypto assets shall not be seized, there shall be no outside intervention in the value of these assets, and no tax shall be collected on these assets for now. However, it will be useful to monitor the statements of the TBC for new regulations that may be introduced about this matter in the future.