New guidelines set the stage for crypto asset platform establishment: What you need to know

The Capital Markets Board of Türkiye (CMB) has unveiled a significant regulatory framework for crypto asset trading platforms, setting the stage for a new era of compliance in Türkiye. Published in its bulletin dated 8 August 8 2024 (the Resolution), this new framework introduces stringent requirements for the establishment, ownership, management and capital adequacy of these platforms. This move follows the enactment of Law No. 7518, which amended the Capital Markets Law and issuance of an announcement (the Announcement) mandating all entities involved in crypto asset services, both current and prospective, must submit written declarations to the CMB by 2 August 2024 to align with these new regulations.

Key provisions of the new regulatory framework

1. Establishment and corporate requirements:

Corporate structure: Platforms must be established in the form of joint stock company (anonim şirket).

Capital requirements: The minimum capital requirement is set at TRY 50 million fully paid in cash, with equity not falling below this amount. This amount may be increased in line with future regulations concerning operational principles. Additionally, all shares must be in registered form and issued in exchange for cash.

Compliance with law and relevant regulations: The articles of association and the founders must comply with the provisions set forth in the Capital Markets Law and relevant regulations.

Company name: The trade name must include the phrase “crypto asset trading platform” to clearly indicate the services provided.

Exclusive scope of activities: The articles of association must exclusively state that the business is engaged in one or more crypto asset trading, initial sales or distribution, exchange, transfer and custody operations required by these activities.

Governance: The board of directors must consist of at least three members. Additionally, the platforms must maintain a transparent and clear shareholding structure.

2. Requirements with respect to founders, shareholders and managers:

Integrity and reputation: Founders and shareholders should not have a history of bankruptcy, criminal convictions, other financial or criminal prohibitions as specified by relevant laws or involvement in companies that have had their operating licences revoked. They must also meet specific integrity, financial capability and reputation requirements.

Management qualifications: Managers, including board members, general managers and assistant general managers must meet strict criteria and are subject to similar conditions with shareholders, including having a clean financial and legal background. The majority of board members must hold a four-year degree from an accredited university.

3. Establishment procedures for platforms: Platform founders must apply to the CMB with a draft of the articles of association, prepared in compliance with the establishment requirements, along with documents demonstrating that both they and the platform’s managers meet the criteria outlined in the Resolution and the Law. The application must also include the forms and documents specified in Annex 1 and Annex 2 in the Resolution. The CMB may request additional information or documentation if deemed necessary during the review process. Once the establishment licence is granted, platforms must subsequently apply for an operational licence under the principles and guidelines set by the CMB.

4. Transition and compliance provisions:

Eligibility criteria for existing platforms: Platforms that were providing crypto asset services on the effective date of Law No. 7518 and have active customers or customers’ custody balances as of the application date must adhere to the new regulations. Notably, platforms that declared operations within the scope of the Announcement, but lacked active customers or customers’ balances at the time of application, have had their applications dismissed due to non-compliance with legal prerequisites.

Submission requirements: Applications submitted to the CMB without the necessary Annex 2 Form in the Announcement or missing essential documents and explanations outlined in items (3) and (4) of the Annex 1 document list in the Announcement will be disregarded. Specifically, item (3) requires comprehensive documentation with respect to the company’s information system infrastructure, processes for protecting customer assets, procedures for recording transactions on blockchain systems, integrations with internal and external systems (including AML/CFT systems and public authority reporting) as well as operational, reporting and risk management processes. Item (4) pertains to the company’s operation of the custody system for crypto assets and clients’ cash assets, use of external services for crypto custody and wallet technologies used for custody.

Consequences of non-compliance: Platforms whose applications are dismissed or not processed due to non-compliance will be prohibited from engaging in regulated activities. These platforms may reapply once they fulfil the specified criteria.

Compliance deadlines: Companies on the “Operating Entities List” prepared by the CMB according to the Announcement must submit their applications and comply with the regulations under the Resolution by 8 November 8 2024. They can continue operations until the CMB’s further operational regulations are enacted.

Penalties for non-compliance: Violations of these requirements may lead to significant consequences under articles 99/A and 109/A of the Law concerning unauthorized crypto asset service activities. CMB is empowered to suspend unauthorised activities, annul their results and initiate legal proceedings. Offenders may face severe penalties, including licence cancellations, restrictions and potential dismissal from their positions as well as imprisonment for three to five years, along with substantial judicial fines. Additionally, the CMB can mandate the removal or blocking of online content related to such activities.

We anticipate that further legal developments – through regulations, administrative decisions, communiqués and guidelines – will continue to shape various aspects of the crypto sector. These regulatory advancements are welcomed by stakeholders, as they establish a solid foundation for the growth and stability of the crypto industry in Türkiye.