Regulation
Turkey on the brink of crypto regulation
Turkey, a country with a significant presence in the global cryptocurrency market, is set to introduce regulations governing crypto assets in 2024. The news follows an announcement in January by Mehmet Simsek, Turkey’s Treasury Minister and Finance, which indicated that local legislation on cryptocurrencies was in force. nearing completion.
While many expected the Turkish parliament to begin regulating the crypto market in early 2024, the official bill has yet to be presented. This lack of regulatory clarity has sparked questions within the Turkish crypto industry regarding the timing of the legislation’s arrival and the current state of crypto regulation in the country.
Current Status of Crypto Regulations in Türkiye
Despite the lack of comprehensive crypto legislation, Turkey has some preliminary regulations in place. These measures, however, do not have the support of the Turkish parliament, raising concerns about their applicability.
Local cryptocurrency expert Ismail Hakki Polat describes the current state as “very light regulation” targeting crypto assets. One of these regulations, implemented by the Central Bank in 2021, prohibits the use of cryptocurrencies like Bitcoin for payments in Turkey, as they are not considered legal tender. However, Polat highlights the lack of parliamentary oversight, raising questions about the potential consequences and sanctions for violating this rule. He describes it as a regulation “without a foot on the ground”.
There is a second regulation under the jurisdiction of the Financial Crimes Investigation Board (MASAK), focused on anti-money laundering (AML) measures in the crypto sphere. This regulation requires exchanges to collect certain Know Your Customer (KYC) data from users in order to prevent illicit activities such as money laundering and terrorist financing.
To further complicate the landscape, the Capital Markets Board of Turkey (CMB), also known as SPK (Sermaye Piyasası Kurulu), issued guidelines in 2018 prohibiting entities under its authority, such as banks and brokers, to trade cryptocurrencies. Industry leader Tansel Kaya, CEO of Mindstone Blockchain Labs, highlights the outdated nature of these SPK guidelines.
Türkiye: a major player in the global crypto market
Despite the lack of comprehensive crypto legislation, Turkey stands out as a major player in the global cryptocurrency market. With around 20 million crypto investors out of a total population of 85 million, some studies suggest that Turkey’s adoption rate has exceeded 40%, meaning that potentially two in five Turkish citizens hold assets cryptographic. This translates into significant trading volume, placing Turkey fourth in the global crypto market according to Chainanalysis data, with an estimated volume of $170 billion.
This outpaces established economies like Russia, Canada, Vietnam, Thailand and Germany. In September 2023, the Turkish lira even became the leading crypto trading pair on Binance, accounting for 75% of all fiat trading volume on the exchange. This increase in crypto activity in Turkey is attributed to a massive influx of investors looking for alternative financial instruments.
Source: Chainalysis
Beyond Catch-Up: Turkish Crypto Regulations and the FATF Gray List
Turkish crypto legislation is not just about catching up with the times. The country’s goal is to improve its standing with the Financial Action Task Force (FATF), an intergovernmental watchdog promoting effective anti-money laundering and anti-terrorism financing policies. In October 2021, the FATF placed Turkey on its “grey list” due to concerns about disproportionate regulation of the nonprofit sector.
Local cryptocurrency expert Ismail Hakki Polat explains that Turkey must address 39 measures set by the FATF to be removed from the “grey list”. One of these actions specifically targets the crypto industry. The FATF requires member countries to comply with its framework to ensure that virtual assets are not exploited for criminal purposes. By implementing strict crypto regulations, Turkey hopes to demonstrate its commitment to fighting financial crime and securing its removal from the FATF “grey list.”
Focus on investor protection: licenses and secure custody under the new law
The next Turk cryptography law will primarily focus on the regulation and licensing of cryptocurrency exchanges, now referred to as virtual asset service providers (VASPs) under the FATF. These regulations will establish clear guidelines for VASP operations, defining their responsibilities to their customers. Additionally, the law will set standards for secure custody – how VASPs must securely store crypto assets entrusted to them by their users.
This focus on investor protection stems from the fallout from a major Turkish crypto exchange, Thodex. The stock exchange abruptly stopped operations in April 2021, leaving investors high and dry. Thodex founder Faruk Fatih Özer was finally convicted in 2023 for fraud estimated at $2 billion. Beyond the VASP regulations, the new legislation is also expected to finally provide a legal framework for taxing cryptocurrency transactions in Turkey.
Taxation and tokenization
Local reports suggest that the Turkish tax authority is considering imposing low-rate transaction taxes on crypto, potentially using existing taxes such as the Banking and Insurance Transaction Tax (BSMV), which s currently stands at 5%. Income from cryptocurrencies will also be subject to a tax return, but a zero withholding tax rate would be considered.
Additionally, the next bill is expected to address the regulation of tokenization of real-world assets, potentially opening the door to new financial instruments.
Timetable for legislation
The exact release date for Turkey’s crypto legislation remains unclear despite initial expectations for progress in early 2024. Some industry observers link this timeline to the upcoming June meeting of the U.S. Office of Foreign Assets Control (OFAC). ), which could consider withdrawing Turkey from the FATF. gray list. Industry leader Tansel Kaya suggests the law and its regulations should be adopted before this meeting, possibly in May.
Local expert Ismail Hakki Polat offers a broader timetable, suggesting a possible release by the end of the current parliamentary season in June. However, he recognizes a possible postponement until the fall, or even the end of the year. The urgency surrounding the removal of the FATF gray list appears to have diminished according to Polat.