The New Capital Markets Law numbered 6362, adopted on December 6, 2012 (the “CML”), has introduced important changes regarding investment services and investment firms. The Capital Markets Board (the “CMB”) issued the Communiqué (III-37.1) on Principles regarding Investment Services and Ancillary Services dated July 11, 2013, which became effective as of July 1, 2014 (the “Communiqué”) and recently released the Guide Regarding Investment Services and Activities and Investment Firms in order to implement and provide an explanation and more specific details of the rules stipulated under the CML and the Communiqué.
The Communiqué stipulates that investment services can be provided only by investment firms holding the appropriate regulatory licenses (i.e., banks, brokerage houses and other capital market institutions) issued by the CMB. In this respect, Article 40 of the CML strictly prescribes any activity conducted by unlicensed entities in Turkey which may create an impression to the public as if those entities were licensed by the CMB (e.g., advertisements or promotion of any securities services). Any act contrary to this restriction is a crime according to Article 109 of the CML and may lead to monetary fines and imprisonment for the persons involved.
The Communiqué sets forth three different types of licenses depending on the activity to be engaged in by the investment firms: (i) if the investment firm is only accepting the orders from its customer regarding capital market instruments and re-directing them to another investment firm for execution of the same, permission to intermediate for the transmission of the orders; (ii) if the investment firm is accepting the orders from customers and also intermediating for the execution of such orders on the exchange or any similar platform, permission to intermediate for transaction; or (iii) if the investment firm is transacting with the customers as the counterparty and executing such transactions on its own account, permission to intermediate for the portfolio must be obtained from the CMB.
If a licensed Turkish investment firm is intermediating for the transmission of the orders to a foreign institution, the CMB must be notified of such transaction and each subsequent transaction before they are executed. If a licensed Turkish investment firm is intermediating for a transaction or for the portfolio in a foreign market such investment, that firm must either be a member of an exchange platform located in the foreign market or it must conduct such activity with a foreign institution which is authorized by the relevant regulatory agency of the country where the transaction is to be executed. The Communiqué also sets forth further rules and procedures with regard to the conduct of such intermediary activities with the foreign institutions.
As to the activities of foreign investment firms, pursuant to Article 9 of the Communiqué the investment services and activities that a Turkish resident engages in with foreign financial institutions, the accounts they open with such foreign institutions, any cash or other valuables they transfer to the institutions and any other transaction a Turkish resident executes with such accounts are not within the scope of the Communiqué, provided that, no solicitation, advertisement, marketing, promotion or any other similar activity is conducted by such foreign institutions targeting the Turkish residents and the initial contact with the foreign financial institution is established by the Turkish resident on her/his own initiative. The Communiqué further stipulates that if a foreign financial institution establishes a place of business in Turkey, runs a Turkish web-site, or indirectly or directly engages is promotion or marketing activities in Turkey, then the foreign financial institution would be deemed to target Turkish residents. If the CMB determines that Turkish residents are targeted by a foreign institution with such activities, the relevant provisions of the CML and the Communiqué will be applied and the CMB will not allow for such activities without a license.
Within the scope of such regulatory framework, the new CML and the Communiqué will pave the way for activities of the investment firms to increase more in Turkey and will also allow the CMB to more specifically regulate and supervise the respective activities of investment firms.