The Grand National Assembly has passed numerous legislative amendments introducing new financial concepts to Turkish financial markets in order to strengthen Turkish practices in line with global trends. The amendments also intend to further implement the modifications required by the Basel Committee on Banking Supervision by amending various articles of the Banking Law (No. 5411). In addition, significant financial tools have been unveiled through changes to the Capital Markets Law (No. 6362). Below is a brief summary of the most notable amendments introduced under the Banking Law and Capital Markets Law.
Amendments To Banking Law No. 5411:
- A new set of rules has been implemented that clearly recognizes market manipulation and misleading transactions conducted through banking activities. Although market manipulation is already regulated under the Capital Markets Law under the title of "Market Fraud" and is considered criminal conduct, as per the amendments to the Banking Law, these activities will only be subject to administrative fines.
- Changes to the Banking Law have also introduced new risk groups for banks. From now on, deputy general managers and other officers of banks who also occupy positions of a similar or higher rank in corporations, as well as the spouses and children of the foregoing, will be considered part of the same risk group for lending if they: (i) have individual or joint, or direct or indirect, control, (ii) possess unlimited liability, or (iii) are members of the board of directors or general management in the corporation. In addition, banks whose majority capital is held by the Turkey Wealth Fund Management Corporation, Turkey Wealth Fund, or other public administrations within the central administration will be classified as a separate risk group from the companies they control.
- Transactions that the Turkey Wealth Fund Management Corporation or Turkey Wealth Fund are party to are included in the list of transactions that are not subject to credit limitations.
- The concept of "Prevention Plans" has been introduced to the Banking Law to comply with the EU and G-20 standards, which require systemically important banks to develop plans covering the actions to be taken in possible adverse scenarios while taking into consideration the relevant risk factors.
- One of the most notable features of the amendment package is the enhancement of the Central Bank's authority over banking transactions. The Central Bank can now determine the fees and commissions charged by banks for any kind of transaction, whereas previously it could only determine the maximum rates related to loans and deposits.
- The amendments also expand the definition of a "loan". In addition to financing provided by participation banks through (i) the payment of all movable and immovable property and service fees; (ii) profit and loss sharing investments and the supply of immovables, equipment, or commodities; and (iii) financial leasing, financing in return for property or joint investments and financing issued by development and investment banks provided through the same means now qualify as loans. Furthermore, the Banking Regulation and Supervision Agency ("BRSA") has the authority to include other financing means within the definition of a "loan".
- Significant changes concerning development and investment banks have also been made, and the BRSA has been granted the authority to implement rules specific to such banks. The BRSA's authority to determine the rates and limits for development and investment banks distinct from the standard rules applicable to the banking system might be the most critical amendment made to Article 77 of the Banking Law.
- With the additions made to Article 73 of the Banking Law, information obtained from customers through banking activities following the establishment of a customer relationship are considered customer secrets and cannot be shared with third parties save for certain exceptions. If an exception applies, sharing must be done in compliance with the principle of proportionality.
- Significant increases have been made to the monetary fines applicable to activities in violation of the law.
Amendments to Capital Markets Law No. 6362:
- Significant Transactions: The amendments made to the Capital Markets Law no longer classify "transfers of a significant portion or all assets," "changes in the scope of business," and "delisting" as "material transactions." That said, the wording of the Article maintains the Capital Markets Board ("CMB")'s discretionary authority to determine which transactions may be deemed "material", meaning the transaction "may affect the investment decisions of investors and impact the fundamental structure of a company."
- Exit Right: Some of the most notable changes concerning exit rights include adopting the "fair value" principle instead of the existing "30-day weighted average of stock price" practice and granting the CMB the authority to: (i) regulate the pre-offering of "exit right" shares to other investors and/or shareholders before being purchased by the company, (ii) limit the use of exit rights to shares that were held at the time the material transaction subject to the exit right was disclosed to the public, and (iii) provide exemptions to exit rights in the presence of certain conditions in addition to specifying the circumstances in which such exit rights are triggered on a case-by-case basis within the scope of the principles determined by the CMB.
- Mandatory Tender Offer:The amendment regarding mandatory tender offer requirements allows shareholders to benefit from the tender offer only if they already owned shares at the time the public disclosure regarding the acquisition of control was made. Therefore, those who acquire shares after the public disclosure has been made will not have the right to sell their shares in the mandatory tender process.
- Debt Instruments: Through another amendment, the concept of a Debt Instrument Owners' Board, which is comprised of the holders of debt instruments, has been introduced. With the said institution, the possibility of restructuring the terms and conditions of debt instruments is now available. Furthermore, if an issuer fails to meet its financial obligations, measures such as freezing all of the execution proceedings, seizures, and obtaining interim injunctions during the restructuring process have become available in order to help facilitate the restructuring.
- Security Agent: The concept of a "Security Agent", a widely used instrument in global markets, has been adopted by the Turkish legal system together with the related amendments. New regulations will be introduced that allow investors to more swiftly collect their receivables. Moreover, the powers granted to security agents, the use of security management agreements, limitations on the use of deposited assets subject to security, and the ability to carry out procedures specific to security agents in respective registries pave the way for a potent collateral system.
- Crowdfunding: The CMB now has the authority to regulate crowdfunding activities based on either the borrowing or partnership models. It has been clearly stated that debt-based crowdfunding is not subject to the banking legislation.
- Project Finance: Through the new amendments, it is now possible to fund technology, infrastructure, energy, and industrial projects that require high-volume investments through project finance bonds. It is especially important in Turkish legal practice that project finance funds be treated as legal entities before the registries despite not having actual legal personality and despite being managed on the basis of beneficial ownership. In line with the project finance regulations, without prejudice to the foreign exchange regulations, investment institutions and portfolio management companies are permitted to provide loans, credits, and currency exchange services for activities determined by the CMB including project financing.
- Penal Provisions and Applicable Measures In Case Of a Breach Of Information and Explanations Provided In Prospectus: An overall raise in the penalties regarding wrongful actions under the Capital Markets Law has been observed, e.g., the minimum penalty for market manipulation has been increased from two to three years. Additionally, detailed provisions have been implemented regarding the legal actions to be taken when entities provide misleading information under the issuance documents and when such entities fail to eliminate the relevant breaches or provide a reasonable explanation upon the CMB's request.
These are the most notable changes provided in the amending legislation.