First-step analysis: fintech regulation in Turkey

Financial regulation

Which bodies regulate the provision of fintech products and services?

The Legislative Proposal to Amend the Law on Payment and Security Settlement Systems, Payment Services, and Electronic Money Institutions and Other Laws (the Amending Law) was published in the Official Gazette No. 30956 on 22 November 2019 and entered into force on 1 January 2020. On the effective date of the Amending Law, the powers of the Banking Regulation and Supervision Agency (BRSA) set forth under the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (Law No. 6493) were transferred to the Central Bank of the Republic of Turkey (CBRT). Accordingly, the CBTR has the authority to monitor legal relations to which the payment service providers are a party owing to their activities in order to determine issues and areas for development. The Amending Law also grants the CBTR the authority to determine the rules and procedures of the legal relations therein and form working committees if it deems the relevant activities harmful to the area of payments. Finally, the CBRT is entitled to issue payments, e-money and system operator licences pursuant to the Law No. 6493, the Regulation on Payment Services and Electronic Money Issuance and Payment Institutions and the Communiqué on the Management and Supervision for Information Systems of the Payment E-Money Institutions.

In addition to the CBRT, the Turkish Financial Crimes Investigation (MASAK), which acts as Turkey's financial intelligence unit, effectively fights money laundering and terrorist financing (AML). MASAK checks whether financial institutions meet the requirements of AML regulations and laws. Therefore, fintech companies, such as payment service providers, cryptocurrency trading platforms and crowdfunding platforms, must fulfil their AML obligations.

Sale and marketing of financial services and products may fall under the supervision of the Turkish Capital Markets Board (CMB) or the Banking Regulation and Supervision Agency (BRSA). CMB’s Communique on Principles on Investment Services and Activities and Ancillary services numbered III-37.1 and BRSA’s Regulation on Bank’s Procurement of Support Services impose certain restrictions on financial service providers as well as the vendors providing the sales and marketing of financial services in Turkey.

Article 6 of the Regulation on Establishment and Activities of Asset Management Companies sets forth that asset management companies must obtain authorisation from the CMB prior to their establishment to carry out their activities. According to the Banking Law and the Financial Leasing Law, only entities with a licence granted by the BRSA may legally conduct lending activities. However, following the entry into force of the Amending Law, new licences will be granted by the CBRT as of 1 January 2021.

Which activities trigger a licensing requirement in your jurisdiction?

A large number of financial services and activities are regulated in Turkey. Some of these activities, which trigger licensing, authorisation or registration requirements in Turkey, include, and are regulated by, the following.

• The Central Bank of the Republic of Turkey authorises payment services, invoicing services, e-money services and system operator services.
• The Banking Regulatory and Supervisory Agency issues licences for banking and finance activities, such as banking services, factoring and financial leasing services.
• The Capital Market Authority is responsible for authorising equity and lending-based crowdfunding platform services, trading and carrying out intermediation activities in securities and other capital markets instruments.
• The Ministry of Treasury and Finance authorises insurance activities.
• The Central Securities Depository of the Turkish Capital Markets provides its members with registration (public offering, etc), settlement and custody services.
• The Risk Center established within the Banks Association of Turkey collects risk data and information of clients of credit institutions and other financial institutions to be deemed eligible by the Banking Regulatory and Supervisory Board, ensuring that such information is shared with said institutions or with the relevant persons or entities themselves, or with real persons and private law legal entities if approved or consented.
• Kredi Kayıt Bürosu (KKB) conducts all operational and technical activities through its own organisation as an agency of the Risk Center of the Banks Association of Turkey and provides data collection and sharing services to financial institutions that are members of the Risk Center.

Is consumer lending regulated in your jurisdiction?

Consumer lending is regulated within the scope of the Banking Law, the Law on Bank Cards and Credit Cards, the Regulation on Credit Operations of Banks and by the Ministry of Commerce through the Consumer Law, the Regulation on Consumer Loan Agreements and the Regulation on Housing Finance Agreements.

Are there restrictions on trading loans in the secondary market in your jurisdiction?

In Turkey, in principle, loans can only be provided by bank and credit institutions, which do not include payment service or e-money institutions. These banks and credit institutions must be established and authorised by the Banking Regulation and Supervision Agency. Additionally, loan-based transactions are subject to the Turkish Banking Law and regulations. Transferring a loan by way of novation (ie, discharging the original debt) will have the effect of extinguishing the Turkish law-governed security. In these cases, there is a requirement to re-establish the security for the new lender. A parallel debt structure may be a way of preventing the fall of the accessory security as a result of novation. The transfer of debts is also possible and made by an agreement between the transferor, the transferee and the debtor. The agreement does not have to be in writing. However, security providers for these debts should provide their consent in written form as well. There are no registration requirements with the authorities in Turkey for a transfer or assignment to be effective.

On the other hand, debt instruments, which can only be provided by the above-mentioned institutions, can be purchased and sold in the secondary market under the Capital Markets Law and regulations.

Borsa İstanbul AŞ (BIST) is the most active and organised DIBS secondary market in Turkey. The bonds and bills markets are outright purchase and sales and repo and reverse-repo markets. Intermediary institutions and banks can participate in these markets, and the rules of BIST are valid. In BIST, of which the Central Bank is also a member, participants send their requests and proposals to the BIST system with all the necessary details. When the best demand and offer are met in the system, transactions are carried out within the framework of the determined operating rules. Law No. 7222 on the Amendment of Banking Law and Some Other Laws (the Amending Law), which was published in the Official Gazette dated 25 February 2020 and numbered 31050 and came into force on the same date, introduced the concept of crowd-lending by an inclusion made to Law No. 6362. With regard to crowdfunding, with the amendment made in the first paragraph of article 35/A of Law No. 6362, the CMB is empowered to make determinations regarding crowdfunding activities that collect money from the public based on partnership or lending; hence, establishing the legal basis of the lending-based crowdfunding model. As per the Amending Law, the provisions of the banking legislation shall not be applied for the financing provided through lending-based crowdfunding and shall not be considered as deposit or participation fund acceptance. Regulations regarding lending-based crowdfunding affect the situation of the trading of the funds in the secondary market, which will be provided through a lending-based crowdfunding platform, although, a communiqué for these platforms has not yet been prepared by the CMB. According to the Economic Reforms Action Plan, crowdfunding applications based on equity and lending will be implemented quickly for innovative companies' access to finance.

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

In Turkey, the general rules and principles regarding investment funds are mainly regulated under the Capital Markets Law and regulations. In this respect, further details regarding the establishment and activities of investment funds are regulated under the Communiqué on the Principles of Investment Funds (III.52.1). Accordingly, the Investment Funds Guide clarifies the rules and principles stipulated in this Communiqué.

The regulatory regime for collective investment schemes is new, and equity and lending-based crowdfunding platforms have been highly regulated under Turkish Capital Markets Law. The Communiqué on Equity Based Crowdfunding III-35/A.1 was issued by the CMB and was published in the Official Gazette No. 30907 on 3 October 2019. As per this Communiqué, only the platforms authorised and listed by the CMB may carry out equity-based crowdfunding activities. Law No. 7222 on the Amendment of Banking Law and Some Other Laws (the Amending Law), which was published in the Official Gazette dated 25 February 2020 and numbered 31050 and came into force on the same date, introduced the concept of crowd-lending by the inclusion made to Law No. 6362. With regard to crowdfunding, with the amendment made in the first paragraph of article 35/A of Law No. 6362, the CMB is empowered to make determinations regarding crowdfunding activities that collect money from the public based on partnership or lending; hence establishing the legal basis of the lending-based crowdfunding model. On the other hand, a communiqué for lending-based crowdfunding platforms has not yet been prepared.

As per the Amending Law, the provisions of banking legislation shall not be applied for financing provided through lending-based crowdfunding and shall not be considered as deposit or participation fund acceptance. This situation may bring an alternative to conventional and participation banking models, especially in financing innovative projects with industrial and technology companies. In addition, with the amendments made to article 35A of Law No. 6362, responsibility regarding the information form on the crowdfunding transactions has been clarified and venture companies, whose shares are monitored and recorded, are now allowed to hold general assembly meetings electronically. The CMB is continuing the work on secondary regulations on equity-based crowdfunding. However, according to the Economic Reforms Action Plan, crowdfunding applications based on equity and lending will be implemented quickly for innovative companies' access to finance.

Additionally, peer-to-peer lending is not currently regulated in a manner synonymous with the definition found under PSD II. However, lending-based crowdfunding platforms, which can be considered peer-to-peer lending, have just been regulated as mentioned.

It has also been stipulated that crowdfunding platforms shall not be subject to the provisions of the Capital Markets Law regarding publicly held corporations, public offerings, issuers, the obligations of issuing prospectuses and issuance documents, investment services and activities, ancillary services and exchanges, market operators and other organised marketplaces.

Finally, secondary regulation works carried out by the CMB on crowdfunding platforms is shaped within the framework of the project titled 'Giving Support to the Preparation of Secondary Legislation Relating to Crowdfunding in Turkey' for analysing studies on foreign practices and models that can be applied in Turkey.

Are managers of alternative investment funds regulated?

Alternative investment funds (AIFs) are operated and managed by portfolio management companies on behalf of their investors in exchange for a consideration, namely ‘a participation share’. Managers of AIFs are subject to the Communiqué on Portfolio Management Companies and Activities of Such Companies (III-55.1) issued by the CMB.

Portfolio management companies are required to be established as joint-stock companies with the main objective of operating and managing investment funds. Compliance with certain conditions and obtaining the CMB licence as set forth under the above Communiqué are required for establishing and operating a portfolio management company (PMC). The manager can either be the founder (founding a PMC or real estate PMC (REPMC)) or hold another role in the PMC or REPMC pursuant to a portfolio management contract. Fintech companies do not fall under the scope of the legislation concerning alternative investment fund managers.

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

Lending activities are highly regulated by the BRSA. For instance, according to the Banking Law or the Financial Leasing Law, only the entities with a licence granted by the BRSA can legally conduct lending activities. According to the Turkish Criminal Code No. 5237, money lending and earning interest from that money without holding a licence is a crime, defined as usury, that is subject to imprisonment between two to six years and a monetary fine of an amount up to 500,000 Turkish lira.

In addition, peer-to-peer lending is not currently regulated in a manner synonymous with the definition found under PSD II.  Lending-based crowdfunding platforms, which can be considered peer-to-peer lending, have just been regulated under Turkish Capital Markets Law. However, a communiqué for these platforms has not been prepared yet by the CMB. Accordingly, carrying out lending-based crowdfunding activities is not yet allowed.

Describe any specific regulation of crowdfunding in your jurisdiction.

Reward-based crowdfunding platform activities are not regulated in Turkey. Donation-based crowdfunding platforms may be subject to certain regulations. Both reward- and donation-based crowdfunding platform activities have been performed by several companies in Turkey.

In addition, equity and lending-based crowdfunding platforms are highly regulated under Turkish Capital Markets Law. Law No. 7222 on the Amendment of Banking Law and Some Other Laws (the Amending Law), which was published in the Official Gazette dated 25 February 2020 and numbered 31050 and came into force on the same date, introduced the concept of crowd-lending by the inclusion made to Law No. 6362. The Communiqué on Equity Based Crowdfunding III-35/A.1 was issued by the CMB and was published in Official Gazette No. 30907 on 3 October 2019. According to this Communiqué, only the platforms authorised and listed by the CMB may carry out equity-based crowdfunding activities. With the amendment made in the first paragraph of article 35/A of the Law on Capital Markets Law No. 6362, the CMB is authorised to make determinations regarding crowdfunding activities by collecting money from the public through partnership or lending. Therefore, the legal basis of the lending-based crowdfunding model is established. On the other hand, a communiqué for lending-based crowdfunding platforms has not been prepared yet by the CMB.

Describe any specific regulation of invoice trading in your jurisdiction.

The accounts receivable are usually, but not always, in the form of cheques or cashier’s cheques assigned or transferred to the assignee by the assignor in return for immediate payment. The Law on Financial Leasing, Factoring, and Financing Companies and its secondary regulations are the primary pieces of legislation that govern this field in Turkey.

In addition, establishing a platform to provide information and services regarding electronic invoices to merchants, is not regulated in Turkish jurisdiction. However providing services for mediating invoice payments is subject to Law No. 6493.

Are payment services regulated in your jurisdiction?

Payment services are regulated in Turkey under Law No. 6493. According to Law No. 6493, the following activities are defined as payment services:

• all the operations required for operating a payment account, including the services enabling cash to be placed on a payment account and cash withdrawals from a payment account;
• payment transactions, including transfers of funds from the payment account of a payment service user before the payment service provider; direct debits, including one-off direct debits, execution of payment transactions through a payment card or a similar device; and the execution of money transfers, including regular standing orders;
• issuing or acquiring payment instruments;
• money remittance;
• executing payment transaction where the consent of the payer to execute a payment transaction is given by means of any information technology or electronic telecommunication device and the payment is made to the information technology or electronic telecommunication operator, acting only as an intermediary between the payment service user and the supplier of the goods and services; and
• services for mediating invoice payments.

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

The Amending Law was published in the Official Gazette No. 30956 and dated 22 November 2019 and entered into force on 1 January 2020. The Amending Law extended the list of payment services to include ‘payment initiation services’ and ‘account information services’, which were introduced by the Directive (EU) 2015/2366 on payment services (PSD2). However, unlike the PSD2, banks are not legally required to offer third-party providers access to their customers’ accounts via open application programming interfaces (APIs), at least until the CBRT issues its secondary legislation on data-sharing practices; although, a number of Turkish banks already publish their APIs to promote third-party developers. Foreign exchange buying and selling transactions in cash, without the use of a payment account, are not considered payment services under the scope of Law No. 6493. Therefore, to conduct these kind of transactions, there is no need to obtain any licence from the CBRT.

Relevantly, the term 'open banking' has been defined for the first time in the Banks’ Information Systems and Electronic Banking Services (the Regulation) published in the Official Gazette 15 March 2020 and numbered 31069. The effective date of the Regulation, which also refers to sharing via API, has been determined as 1 January 2021. Pursuant to the Regulation, remote identification and digital onboarding have been regulated for the first time. Open Banking services may be used for Digital Identity.

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

Insurance services and, accordingly, selling insurance products are highly regulated under the Turkish Insurance Law and regulations. Companies that decide to perform these activities must obtain authorisation from the Ministry of Treasury. As the activities of insurance companies are restricted, they are not allowed to perform activities other than providing insurance services. In this respect, fintech companies must pay attention not to be considered insurance companies by facilitating activities in the insurance market.

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Kredi Kayıt Bürosu (KKB) offers its services not only to financial institutions, but also to individuals and the real sector through the cheque report, risk report and electronic report systems launched in January 2013. As of September 2014, KKB gathered its services aimed at individuals and the real sector under the umbrella of Findeks, the consumer service platform of KKB.

Providing credit references or credit information services in Turkey is a regulated activity under the Banking Law (Law No. 5411). The Risk Centre was established within the Banks Association of Turkey (TBB) for the purpose of collecting the risk data and information of clients of credit institutions and other financial institutions to be deemed eligible by the Banking Regulatory and Supervisory Board and ensuring that this information is shared with these institutions or with the relevant persons or entities themselves or with real persons and 61 private law legal entities if approved and consented to. The KKB was founded in accordance with article 73/4 of the Banking Law and it conducts all operational and technical activities through its own organisation as an agency of the Risk Centre of the TBB and provides data collection and sharing services to the 180 financial institutions that are members of the Risk Centre.

Law stated date

Give the date on which the above content is accurate.

6 July 2020.