The Turkish Capital Markets Board (the “CMB”) recently initiated criminal proceedings under Article 109/2 of the Capital Markets Law (the "CML") against a foreign individual for the unauthorized marketing of derivatives in Turkey. This is the first such prosecution since clarification of the rules this past July.
The offering of certain financial products and services is a licensed activity in Turkey. Whether the marketing or otherwise soliciting of financial products and services without a license constituted a violation of the licensing requirements had long been an open question. The CMB's Communiqué on Investment Services No. III-37.1 (the "Communiqué"), which entered into force in July 2014, finally clarified this issue. It sets forth that if a foreign institution provides investment services to a Turkish resident who has initiated the communication, the foreign institution is not required to obtain a license in Turkey, provided it does not engage in marketing, promotion or solicitation. A foreign institution hoping to avoid any licensing requirement in Turkey must not: (i) set up an office in Turkey or a website in Turkish, or (ii) engage in any marketing, promotion or solicitation of its investment services, other financial services or products.
Providing investment services in Turkey without the required licenses may result in two to five years' imprisonment, and a judicial fine of up to TRY 1,000,000 (approx. USD 457,000). In addition, both the foreign institution operating in Turkey without a license and its representatives active in Turkey are subject to an administrative fine of up to TRY 280,091 (approx. USD 128,000). If the foreign institution earns a profit from these activities, the administrative fine is at least double the profit generated.
The CMB’s first prosecution of a foreign individual demonstrates that it is proactively pursuing unlicensed foreign individuals and legal entities engaging in these activities in Turkey. To avoid liability, foreign financial services and products providers should update their internal policies to ensure that their sales force does not engage in activities which could be considered the unlicensed marketing of financial products and services in Turkey.