Crypto Asset Trading Platforms Principles and Fundamentals Determined

The long-awaited regulations for crypto asset service providers were published by the Capital Markets Board (CMB) as a Principle Decision in the bulletin numbered 2024/38 on 08/08/2024.

These regulations include critical principles regarding the establishment and operation of platforms that will operate in the sector. These regulations, which industry professionals including me expect more stringent conditions, seem to allow many players to take part in the market. The details are striking.

When we look back a step, on August 5, the CMB published the list of institutions that were active and would be liquidated. According to this temporary list, 47 institutions can continue to operate for now, while 3 institutions will be liquidated. The sector expects this number to increase, but the Board clearly stated in its principle decision that it does not evaluate applications that have not started operating.

Conditions of Establishment:

According to the new regulations published by the CMB, the minimum capital requirement that must be met by those who want to establish a crypto asset trading platform has been determined as 50,000,000 TL.

It is mandatory that this capital is paid in cash and that the equity capital is not below this amount. Contrary to expectations, this capital amount remained quite low, which means that more players can take part in the market. However, it has been made mandatory for the platforms to be established as joint stock companies, their shares to be registered, and their titles to include the phrase “crypto asset trading platform”.

These steps stand out as an important necessity in order to clarify the corporate identity and legal responsibilities of the platforms.

Management and Partnership Structure:

The board of directors of the platforms may consist of at least 3 people.

However, I think that a larger number of members would be more effective in terms of corporate governance and that the addition of independent board members would be beneficial. In addition, the inclusion of individuals who have been convicted of certain crimes, or who are not financially strong or have insufficient reputation among the founders, partners and managers is prevented.

Those who own or control 10% or more of businesses in various sectors whose operating permits have been previously revoked, or those who caused the revocation of the permits, will not be able to be involved in the establishment, partnership or management of platforms. This can be considered as an important step taken to increase reliability in the sector.

Business Subject and Compliance:

According to the new regulations, the business of crypto asset trading platforms will be limited to crypto asset trading, initial sale, exchange, transfer and custody transactions only.

This requires platforms to operate only in these areas and prevents them from diversifying into other lines of business. This can be seen as a positive development in terms of clarifying companies’ business models and increasing focus in the sector.

Global Players Location:

The minimum capital requirement of 50,000,000 TL determined for crypto asset trading platforms within the framework of the new regulations stands out as a relatively low entry barrier by global standards when evaluated in terms of foreign currency.

This situation presents an attractive opportunity for global players planning to enter the Turkish market. However, another point that draws attention is that many active global players are not yet on the CMB’s temporary list. This means that legally these players cannot operate in Turkey.

Global platforms must meet the capital and other compliance requirements to operate in Turkey. Otherwise, these players will not be able to provide services in the Turkish market. While this provides a temporary advantage to players operating in the local market, it may lead to a change in the balance of competition in the market due to the difficulties experienced by global players in the compliance process.

Transitional and Harmonization Provisions:

According to the CMB’s announcement dated 02.07.2024, applications of companies that do not meet the conditions determined during the application process or submit incomplete documents will not be processed.

This step can be considered as a measure taken to prevent inactive, last-minute initiatives in the sector. In addition, during the transition period, platforms must comply with the conditions determined by the Board and complete their applications by 08.11.2024. Otherwise, these platforms will not be able to engage in activities in accordance with the definition in the Law and will be subject to sanctions.

Conclusion:

The CMB’s new regulations include important steps to strengthen the institutional structure in the sector and protect investors.

However, the low minimum capital requirement and the flexibility of the board structure may allow more players to take part in the sector. This situation may increase competition and at the same time lead to the entry of companies with weak capital structures into the market. We will observe the effects of the current regulations more clearly in the coming period. However, it is already possible to say that these regulations have created significant movement in the sector.