How can I start providing payment services and e-money services in Turkey?

How can I start providing payment services and e-money services in Turkey?

Anyone can take up the business of a payment institution (hereinafter PI) or an e-money institution (hereinafter EMI) through a stand-alone company or a subsidiary in Turkey. In both cases, the authorization procedure follows the same rules.

A subsidiary is a distinct legal entity from its parent company and is accordingly subject to all the applicable prudential requirements in Turkey.

Which activities can I carry out?

Payment institutions in Turkey can:

• provide payment services as listed in article 12 to the Law on Payment And Securities Settlement Systems, Payment Services and Electronic Money Institutions
• provide ancillary activities, such as guaranteeing the execution of payment transactions, money exchange, and data storage;
• manage payment systems.

Electronic money institutions in Turkey can carry out all the above activities and issue, redeem and distribute electronic money.

Applicants may carry out business activities not related to the provision of payment services and electronic money services, provided that adequate assets are segregated for the provision of payment and e-money services in Turkey.

To whom do I apply for authorization?

Your application must be submitted to the Central Bank the Republic of Turkey, 

Market access for PIs and EMIs in Turkey is regulated by Legislative Decree 6493 Law on Payment And Securities Settlement Systems, Payment Services and Electronic Money Institutions)

(Supervisory regulation for payment institutions and electronic money institutions) issued by the Central Bank the Republic of Turkey.. Central Bank the Republic of Turkey (the Central Bank of the Republic of Turkey), is the competent authority for the authorization of PIs and EMIs.

Can I approach the Central Bank of the Republic of Turkey to have pre-application discussions?

You are encouraged to get in touch with the Central Bank of the Republic of Turkey. While not mandatory, pre-application discussions with prospective PIs or EMIs can prove beneficial for applicants wishing to gain a better understanding of the various stages of the authorization process and of the Central Bank of the Republic of Turkey’s expectations in this regard. 

Why is it important that the application be complete?

When you submit an application, the Central Bank of the Republic of Turkey first assesses whether it is complete or not; if the application is not complete, the authorization process cannot begin or will be suspended until the additional information has been supplied. The completeness of the information provided is crucial to ensuring that the authorization process begins and the application is processed as smoothly as possible. 

What does the Central Bank of the Republic of Turkey assess in the case of an application for a stand-alone company or a subsidiary?

the Central Bank of the Republic of Turkey assesses the soundness of the initiative and the transparency and adequacy of the shareholding structure. If the new PI or EMI belongs to a group, the Central Bank of the Republic of Turkey assesses the group structure and the ability of the Central Bank of the Republic of Turkey to perform adequate supervision.

Initial paid-up capital

For a PI, initial paid-up capital must be at least:

• One million Turkish Liras where the PI provides only money remittance services For payment institutions: paid-up capital, consisting of cash and free of all kinds of fictitious transactions, should not be less than two million Turkish Liras for the payment institutions (Approx: 300.000 Euros), 
• For an EMI, initial paid-up capital must be least five million Turkish Liras (approx: 700.000 Euros)

Shareholding structure

the Central Bank of the Republic of Turkey assesses the suitability of qualified shareholders (i.e. holding at least 10 percent of shares or voting rights). In order to be suitable, shareholders must be of good repute, proven integrity, possess sufficient knowledge and be financially sound. The integrity requirements are detailed in sub legislations issued by the Central Bank of the Republic of Turkey and BDDK. The reputation, experience and financial soundness requirements are defined in the sub legislations. (Supervisory regulation for payment institutions and electronic money institutions) issued by the Central Bank of the Republic of Turkey.

Regarding financial soundness, the Central Bank of the Republic of Turkey assesses whether the financial situation of the shareholders is sufficiently sound to support the activities of the new intermediary after authorization.

the Central Bank of the Republic of Turkey also takes into account the degree of influence exerted by shareholders or other persons, and the existence and content of shareholders’ agreements governing the PI’s or EMI’s management. The ownership structure must enable the exercise of effective supervision and ensure the sound and prudent management of the new PI or EMI.

For assessment purposes, the Central Bank of the Republic of Turkey takes into account links of whatever nature, including family or associational ties, between shareholders and other persons.

Program of operations

The Central Bank of the Republic of Turkey assesses whether the activity envisaged by the applicant fits into the legal categories of payment services listed in Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions and does not fall under the negative scope (services that are not considered payment services by the Law, although they involve the transfer of funds).

Business plan

The Central Bank of the Republic of Turkey assesses the viability and sustainability of the proposed business plan, having regard to the amount of the initial investment required to create the technical and organizational structure and volumes of business that the PI or EMI proposes to achieve and expected outturns. the Central Bank of the Republic of Turkey evaluates applicants’ ability to reach and maintain profitability and to comply with the prudential rules during the start-up phase. Applicants are requested to provide a financial plan, including a projected balance sheet and profit and loss account for the base case and worst-case scenarios for at least the first three business years, with evidence of their funding profile.

Where appropriate, the Central Bank of the Republic of Turkey may require that the applicant’s shareholders offer specific financial commitments in order to safeguard the sound and prudent management of the applicant. The origin of the resources used for the acquisition also comes under scrutiny.

Corporate governance structure and management bodies

The Central Bank of the Republic of Turkey assesses the corporate governance structure in order to verify if it ensures the monitoring of all risks, its consistency with the scale and dimension of the new PI or EMI, the clarity in the allocation of tasks among different corporate bodies and in the relationship with shareholders.

The persons performing administrative, managerial or control functions (including board members and senior managers) must satisfy the experience and integrity requirements by the law and regulations. These requirements are detailed in Regulation on Operations of Payment and Securities Settlement Systems issued by the Banking Regulation and Supervision Agency of Turkey (Supervisory regulation for payment institutions and electronic money institutions issued by the BRSA).

The integrity requirements mainly refer to criminal proceedings, e.g. preventive measures issued by the judicial authorities or conviction to a term of imprisonment of at least one year or two years for the specific crimes indicated in Regulation on Operations of Payment and Securities Settlement Systems. 

Board members and senior managers are required to prove that they have specific experience in managerial roles, academic positions, professional or civil servant career posts.

The presence of independent directors is positively evaluated by the Central Bank of the Republic of Turkey if it is necessary to reduce the risk of conflicts of interest.

According to Turkish law, the assessment falls under the responsibility of the applicant’s corporate bodies, which assess the suitability of the proposed directors: the applicant must submit to the Central Bank of the Republic of Turkey a copy of the minutes of the meeting in which the verification of suitability took place. The more accurate and motivated the minutes, the less likely it is that the Central Bank of the Republic of Turkey will request information. Vice versa, in the case of an incomplete assessment by the applicant, the Central Bank of the Republic of Turkey may conduct its own investigation and require the original documentation (including extracts of official criminal records) to be submitted.

Internal control system

The Central Bank of the Republic of Turkey evaluates the consistency and the effectiveness of the applicant’s technical, organizational and geographical structure along with its proposed dimension and scale of the activities to be carried out.

The IT system that the PI or EMI adopts must allow for the smooth functioning of its activities and satisfy the supervisory reporting requirements. The IT system must ensure that:

• the PI or EMI is able to monitor, handle and follow up security incidents;
• all pending payment transactions shall be executed in case of termination of the payment services provided;
• access to sensitive payment data of payment service users shall be restricted and constantly monitored by the applicant.

Special attention will be given to the measures put in place in order to safeguard the funds of payment service users or e-money service users, including accounting procedures.

PIs and EMIs can outsource functions, depending upon their operational complexity; the outsourcing contract identifies the minimum guaranteed level of services and ensures the possibility of access for the supervisory authority. In any case, the PI or EMI is ultimately responsible for the outsourced activities.

PIs and EMIs should also ensure compliance with the anti-money laundering provisions adopted in line with the Italian regulations: they should respect the “know your customer” rule and the obligation to report suspicious transactions.

What information should I provide when submitting an application for a stand-alone company or subsidiary in Turkey for payment institutions?

• copies of instruments of incorporation and bylaws o;
• a program of operations;
• a business plan;
• governance arrangements and organizational structure report;
• a list of the persons who directly or indirectly participate in the capital of the PI or EMI, with an indication of the shares held; for indirect holdings, an indication of the company through which the capital is held;
• documentation showing that persons directly or indirectly holding a qualifying share of the capital or control of the applicant satisfy the reputation requirements;
• a depository bank declaration certifying the existence and amount of initial paid-up capital. In case the applicant carries out other business activities not related to the provision of payment services and electronic money services, evidence that it holds segregated assets amounting to the initial paid-up capital;
• a copy of the minutes of the meeting in which the suitability of the managers has been assessed by the board. In case the applicant carries out other business activities not related to the provision of payment services and electronic money services, the assessment regarding the professional experience of the proposed manager shall be limited to the member of the Board responsible for the management of payment services/electronic money services;
• information on the provenance of the funds.

The Central Bank of the Republic of Turkey also takes account of other information in its possession or in possession of other public authorities, such as the competent supervisory authorities of the foreign countries concerned.

Business Plan Requirement

With specific reference to the business plan, it provides guidelines on its content. In particular, the plan must indicate:

• the different payment services envisaged and the expected volume of transactions;
• the applicant’s technical, organizational and geographical structure, its procedures for internal controls and the characteristics of its IT system;
• the projected budget calculation for the first three years of business operation.

With specific reference to the governance arrangements and organizational structure report, this must indicate at least:

• the composition, role, and functioning (also in terms of the allocation of powers) of the management bodies;
• the composition and role of any committees, if established;
• the organizational chart with an indication of the number of full-time employees per unit.

With specific reference to the description of the internal control system, the documentation and information submitted should indicate for each control function (i.e. Risk Management, Compliance, Internal Audit), the:

The IT infrastructure shall include a description of the back-up facilities, the disaster recovery procedures, and the IT structure; the head of the IT unit should also be indicated, along with a description of his or her role, responsibilities and professional skills.

What’s life like as a new PI or EMI in Turkey?

The supervision of Turkish PIs and EMIs, subsidiaries of foreign PIs and EMIs is carried out by the Central Bank of the Republic of Turkey.

Branches of PIs and EMIs – though subject to the supervision of their home country’s competent authorities – must comply with the Turkish regulatory framework with regard to AML obligations, transparency, and the rights and obligations of the parties; the same rules apply to agents and distributors of PIs and EMIs.

the Central Bank of the Republic of Turkey’s supervisory activity is aimed at maintaining the efficiency and stability of the payment system and at protecting payment service users.

The controls applied take due regard to the entrepreneurial nature of the supervised entities, which autonomously establish their own strategies, organizational models and investment policies.

The Central Bank of the Republic of Turkey’s supervisory activity includes analysis of the supervised entities and the adoption of measures designed to promptly uncover anomalies in technical and organizational structures with a view to advising on the appropriate corrective actions. These controls regard all aspects of their operations and focus on the coherence of organizational structures, the quality of management, risk control, capital adequacy with respect to any losses, and transparency and fairness towards customers.

To safeguard the integrity of the financial system and to prevent illegal practices, the Central Bank of the Republic of Turkey carries out specific controls in accordance with anti-money-laundering and usury regulations.

This is done through the evaluation of documents (based on the gathering, processing and systematic analysis of statistical, accounting and administrative data) and on-site inspections at intermediaries’ offices to verify the quality and accuracy of the data submitted and to gain a better understanding of the PI’s or EMI’s organization and operations. Inspections are tailored to the characteristics, size and complexity of the intermediary being monitored and focus on material risks, governance, and internal controls.

Our lawyers and financial services specialists at Finahukuk provide solutions to clients by combining the traditional legal fabric with new technologies.

If you would like to more information on how to set up a financial institution in Turkey getting a licence or alternatively would like to set up a similar investment in Turkey, we welcome you get in touch with our specialists.