Crypto Asset Regulation in Turkey: Recent Developments

Yesterday, with the statements made by the Minister of Treasury and Finance, Mehmet Şimşek, the topic of regulation related to crypto assets became active again. The Minister pointed out that the only remaining reason for being on the FATF Grey List is the regulation related to crypto assets, and this will be resolved soon by becoming law.

In our previous blog post, we had discussed why we are on the grey list in FATF.

https://www.linkedin.com/posts/gurcanavci_aml-masak-fatf-activity-6856836334095478785-iIJ7?utm_source=share&utm_medium=member_desktop

As you know, the Capital Markets Board has worked on a draft law, presented it to some stakeholders, and revised a new draft with the suggestions received. However, the issue came to the agenda not so much because of a crisis like FTX, Thodex, but for a different reason. So, what is this FATF grey list talk?

Turkey, being a member country of FATF, could not meet FATF’s criteria regarding regulations and their implementation for preventing money laundering and financing of terrorism, and for this reason, it was placed on the grey list in 2021. Although efforts have been made to resolve this matter, which has a quite bad reputation, the problems could not be completely resolved in the evaluations made in 2022 and 2023.

The last remaining issue, the regulation related to crypto assets, is listed under the “New Technologies” heading under FATF’s R.15 criterion. Although Turkey was classified as largely compliant in the FATF assessment for this category in 2019, it was classified as largely non-compliant in 2021. Of course, this did not result in the country going backward. The application of the criterion was toughened by FATF due to evolving technology and market conditions. The proliferation of crypto assets led FATF to have more expectations.

Even though Turkey subjects crypto asset service providers to various regulations through MASAK, making them responsible to MASAK, this was not deemed sufficient by FATF.

Because Criterion No.15 also demands the following from countries:

To manage and mitigate the risks arising from virtual assets, countries must ensure that virtual asset service providers are regulated for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) purposes, licensed or registered, and subject to effective systems to monitor and ensure their compliance with relevant measures as stipulated in FATF Recommendations.

Criterion No.15 naturally does not provide detailed information on how countries should perform licensing. However, it outlines the framework for some issues:

• Mandatory License/Registration: VASPs, i.e., crypto asset service providers, must be licensed or registered.
• Corporate Transparency and Reputation: Authorized authorities should take the necessary legal or regulatory measures to prevent criminals or their affiliates from having significant control or management roles in VASPs.
• AML/CFT Compliance: VASPs should comply with AML and CFT requirements to mitigate the risks of money laundering and terrorist financing, and should be subject to sufficient regulation, supervision, or monitoring.
• Authorized authorities should supervise or monitor VASPs, request regular information and documents, suspend or freeze the license if necessary, and have the legal power required to ensure compliance.
• Effective, proportionate, and deterrent sanctions should be available in case of non-compliance with AML/CFT requirements by VASPs. These sanctions should be applicable to VASPs as well as their managers and senior executives.
• VASPs must apply Customer Due Diligence (CDD) for transactions exceeding EUR/USD 1,000 (regardless of the establishment of an ongoing business relationship). If virtual assets are being transferred via VASPs, the information of both the sender and the recipient must be obtained, and this information should be shared immediately and securely with the recipient VASP, and when necessary/requested, with the authorized authorities.