Written by: Jin Jianzhi, Attorney at Mankiw LLP
From September 2023 to August 2024, the exchange rate between the Turkish lira and the US dollar has fallen by 22%. For a Turk who is sensitive to arbitrage, holding lira is definitely a losing deal, and he will not miss any opportunity to exchange the lira on hand for US dollars or other assets that are not easy to depreciate as soon as possible. Kucoin's 2023 report stated that more than 50% of Turks invest in cryptocurrencies.
In such an overwhelming situation, the Turkish authorities can only embrace cryptocurrencies. Although there is no mention of the rapid devaluation of the legal currency lira, it is everywhere in the declaration of the "Adopted Bill on Amendments to the Capital Markets Law" (Adopted Bill on Amendments to the Capital Markets Law) Helpless: “While the high volatility of crypto asset price movements has led to a better understanding of how risky these assets are, households are increasingly interested in these assets that are significantly different from those in the current financial system. . Especially during the global pandemic, the attention of individuals around the world has increased. The use of crypto-asset platforms by individuals with a strong willingness to take risks has also become very common in Turkey. The number of people who have opened accounts and conducted transactions is therefore about 10 million. Therefore, like international examples, our country also recognizes the need to regulate the platform to avoid hindering this innovative ecosystem, taking into account the benefits of using blockchain technology in finance and other fields. The development of the system. The Turkish authorities decided to regulate, but the purpose is not to regulate blockchain technology, but to regulate the trading activities of crypto assets based on this technology.”
In the process of communicating with local Turkish lawyers, we also found that Turkey's regulation of encryption licenses is still in the exploratory stage. Many details do not have clear legal provisions, and we need to keep in touch with the authorities at all times to ensure compliance.
Applicable situations
Article 3 of the Capital Markets Amendment Law provides that crypto-asset service providers need to obtain a license from the Capital Markets Board of Turkey upon establishment and commencement of operations and may only engage in activities determined by the Capital Markets Board. Crypto-asset service providers are defined as platforms, crypto-asset custody service providers, and other entities specified in regulations made pursuant to this Law that provide services related to crypto-assets, including the initial sale or distribution of crypto-assets. Platforms are defined as organizations that conduct one or more crypto-asset transactions, initial sales or distribution, clearing, settlement, transfer, custody, and other transactions that may be determined.
According to Foresight News, the number of companies applying for crypto licenses has grown to 76, including new companies such as Coinbase, KuCoin and Gate.io. Previously approved companies such as Binance, Bitfinex and OKX have participated in the application process.
Whether in terms of legal regulations or market reaction, exchanges are currently the main force in applications.
How to Apply
Prepare necessary documents
According to the amendment, applicants need to prepare a series of documents, which may include but are not limited to information on shareholders and key executives, organizational charts, detailed descriptions of technical systems and information security, etc.
Setting up a local entity
Global exchanges operating in Turkey are required to establish a local entity that must provide proof of reserves and maintain at least 50 million TRY (about $150,000) in a designated local bank account.
Apply for permission
Submit an application to the Capital Markets Board of Turkey, including all necessary documents and information. The amendment states that cryptocurrency service providers must obtain a license from the Board to carry out their activities.
Comply with technical standards
Under the amendments, applicants will need to ensure that their technological systems and information security meet the standards set by the Scientific and Technological Research Council of Turkey.
Waiting for review
After submitting the application, it will be reviewed by the Capital Markets Committee, which will evaluate the applicant’s qualifications, technical systems, financial status, etc. in accordance with the provisions of the amendment.
Continuous Compliance
After obtaining the license, service providers need to continue to comply with all relevant laws and regulations and make necessary adjustments based on market development and regulatory requirements. The currencies that can be listed need to be reviewed by the authorities.
Consequences of no license
Exchanges without a Turkish license are prohibited from engaging in any marketing activities, cannot publicly market in the Turkish language or provide services in Turkish, otherwise it will involve a criminal offense.
Process and cost
Currently, the first batch of applications will close in early September 2024, and the next batch of applications will close in early November 2024. The average application time is about 2 months.
The main costs involved in applying for a Turkish crypto license are: application fees (the cost of obtaining a license from the Turkish Capital Markets Board), legal fees, technical infrastructure costs (for data compliance requirements), audit and reporting fees, personnel costs (mainly hiring compliance officers), insurance, training and certification.
However, it should be noted that the Turkish authorities are still in the exploratory stage for the details of crypto licenses, and the local crypto market in Turkey is not standardized. Therefore, for example, what qualifications the compliance officer needs to have for the applicant to maintain a balance between costs and compliance requirements is still in the exploratory stage. However, as far as we know, based on the current situation of the applicants, the cost of the entire process ranges from 2,750,000 TRY ($81,572) to 10,050,000 TRY ($311,458).
In addition, the corporate tax currently applicable to most Turkish companies is 25%. If you do business in Turkey, you need to consider the tax burden.
Attorney Mankiw's Summary
For cryptocurrency trading platforms and related service providers, Turkey's crypto license is undoubtedly an option worth paying attention to. Although Turkey's regulatory framework is still developing and improving, and the uncertainty and costs brought by this process are inevitable, with the continued depreciation of the Turkish lira and the growing demand for crypto assets among the public, this market still has huge potential and opportunities.
In addition to being able to conduct business legally and compliantly, applying for a crypto license in Turkey can also take advantage of the unique opportunities in the Turkish market, especially as crypto assets are increasingly becoming a tool to combat inflation and currency depreciation. However, applicants need to weigh Turkey's current regulatory uncertainty and compliance costs and be prepared to maintain continuous communication with local regulators. For those companies that are willing to take risks and have the ability to navigate a market where volatility and uncertainty coexist, Turkey's crypto license may be able to bring them unexpected benefits.
