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 Official Gazette No. 30956, dated 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 CBRT has the authority to monitor legal relations to which the payment service providers are a party owing to their activities to determine issues and areas for development. The Amending Law also grants the CBRT 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 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.

The 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 No. 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 have been 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 CBRT 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; and
• 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. In fact, the prohibition on lending is specifically regulated in the Regulation on Payment Services and Electronic Money Issuance And Payment Service Providers. Within the scope of this regulation, payment and e-money institutions cannot give loans, nor may they engage in advertising and marketing activities in a way that creates the impression that they are giving loans. The 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 (namely, 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 CBRT 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 Official Gazette No. 31050, dated 25 February 2020, coming 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. The investment limits in debt-based crowdfunding are regulated in the Crowdfunding Communiqué (III – 35/A.2) published in Official Gazette No. 31641, dated 27 October 2021. In addition, within the scope of the Communiqué, it is regulated that secondary market transactions regarding funded company shares and debt instruments approved by the BIST can be carried out in the relevant market within the framework of the procedures and principles prepared by the BIST and approved by the CMB. However, platforms, with the exception of widely authorised brokerage houses, cannot mediate secondary market transactions regarding shares or debt instruments.

Finally, according to the Economic Reforms Action Plan, crowdfunding applications based on equity and lending will be implemented quickly for innovative companies’ access to financing.

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 the Capital Markets Law. The Communiqué on Crowdfunding Communiqué (III – 35/A.2) was issued by the CMB and was published in Official Gazette No. 31641, dated 27 October 2021. As per this Communiqué, only the platforms authorised and listed by the CMB may carry out equity-based and lending-based crowdfunding activities. The Amending Law, which was published in Official Gazette No. 31050, dated 25 February 2020, entering 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 and Crowdfunding Communiqué (III – 35/A.2), the CMB is empowered to make determinations regarding crowdfunding activities that collect money from the public based on partnership or lending.

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 was clarified and venture companies, whose shares are monitored and recorded, are now allowed to hold general assembly meetings electronically. 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 2. However, lending-based crowdfunding platforms, which can be considered peer-to-peer lending, have 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.

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 from 500 days to 5,000 days.

In addition, peer-to-peer lending is not currently regulated in a manner synonymous with the definition found under PSD 2. Lending-based crowdfunding platforms, which can be considered peer-to-peer lending, have been regulated under the Capital Markets Law and Communiqué No. III-35/A.2 on Crowdfunding.

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 the Capital Markets Law. Law No. 7222 on the Amending Law, which was published in Official Gazette No. 31050, dated 25 February 2020, entering 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, dated 3 October 2019. Communiqué No. III-35/A.2 on Crowdfunding entered into force upon its publication in the Official Gazette, dated 27 October 2021, and designates the CMB as the supervisory regulatory authority. The Communiqué repealed the Communiqué on Equity Based Crowdfunding (No. III-35/A.1), and lending and share-based crowdfunding are now regulated in a single communiqué. As per the Communiqué, crowdfunding activities shall be conducted via crowdfunding platforms, which can be joint-stock companies solely providing crowdfunding services; or investment institutions that are development and investment banks, participation banks or intermediary institutions. The CMB requires all platforms to be licensed by the CMB. With the Communiqué as a general rule, platforms will be able to solely carry out share-based and (or) debt-based crowdfunding activities; however, development and investment banks, participation banks and intermediary institutions are exempt from this rule. The principles to be followed while conducting crowdfunding activities will be set out in a written crowdfunding agreement to be executed between the fundraisers and the platform. In addition, the Communiqué paves the way for small or medium-size technology and production companies to raise funds from capital markets without publicly offering shares.

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 term ‘open banking’ was defined for the first time in the Banks’ Information Systems and Electronic Banking Services (the Regulation) published in Official Gazette No. 31069, dated 15 March 2020. The effective date of the Regulation, which also refers to sharing via application programming interface (API), was determined as 1 January 2021. Pursuant to the Regulation, remote identification and digital onboarding have been regulated for the first time. In this context, open banking services may now be used for digital identity.

Additionally, the Regulation on the Operating Principles of Digital Banks and Service Model Banking has been published in Official Gazette No. 31704, dated 29 December 2021. Within the scope of the Regulation, digital banks are provided with the opportunity to perform all the activities that credit institutions can perform, depending on whether they are deposit or participation banks, unless otherwise stated in this Regulation or related sub-regulations. Also, with the Regulation on Operating Principles of Digital Banks and Service Model Banking, the principles of service model banking have been regulated, and service banks will be able to provide service model banking services only to domestically resident interface providers and only within the framework of their own operating permits.

Most importantly, with the Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers, the payment service providers are now obliged to offer the payment account and infrastructure services it offers under similar conditions with other commercial customers, business partners and other payment service providers with which it makes transactions, if another payment service provider wishes to use said services and within one month at the latest, the payment service provider is obliged to convey the decision of rejection or acceptance to the requesting payment service provider. Also, with the Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions, the CBRT is authorised to determine all procedures and principles regarding the service of presenting consolidated information regarding one or more payment accounts of the payment service user with payment service providers on online platforms, provided that the payment service user’s approval is obtained and the payment order initiation service for the payment account in another payment service provider at the request of the payment service user. In addition, the procedures and principles regarding the status of competition-sensitive data in data sharing to be made pursuant to this Regulation are determined by the CBRT by taking the opinion of the Competition Authority.

In addition, with the Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services in the Field of Payment Services of Payment Service Providers, which was published in Official Gazette No. 31676, dated 1 December 2021, the procedures and principles regarding the electronic channel through which the parties acting on behalf of the customers can remotely access the payment services offered by the account service providers via APIs and perform the transactions within the scope of the Law or instruct the account service providers to carry out such transactions was regulated.

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?

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. Since 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 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 187 financial institutions that are members of the Risk Centre.