(May 12, 2021) On April 16, 2020, the Regulation on the Use of Cryptoassets in Payments issued by the Central Bank of Turkey was published in the Official Gazette. The regulation defines cryptoassets as “intangible assets that are virtually created with distributed ledger technology or similar technologies and are distributed through digital networks, but are not categorized as fiat money, commercial bank money, electronic money, instruments of payment, security, or other types of capital market instruments.” (Art. 3(1).)
The regulation prohibits the direct or indirect use of cryptoassets in making payments and providing services that enable the direct or indirect use of cryptoassets in making payments. (Art. 3(2)–(3).) Furthermore, payment service providers are prohibited from developing business models and providing services related to such models that enable cryptoassets to be used directly or indirectly in the provision of payment services and the export of electronic money. (Art. 4(1).) (“Payment service providers” include regulated banks—see Law No. 6493, art. 13.) Finally, payment institutions and electronic money institutions are prohibited from intermediating between platforms providing sale, storage, transfer, or export services related to cryptoassets, or fund transfers realized through such platforms (Art. 4(2).) Significantly, the regulation does not prohibit the buying and selling of cryptoassets between private parties or on exchanges.
Reactions to the Regulation
In a press statement, the Central Bank stated that the need for the regulation was based on the lack of cryptoasset governance mechanisms; extreme volatility of cryptoassets; risk of “wallet” theft; unauthorized use of the assets without the consent of the owner; and irrevocable nature of cryptoasset transactions.
In the media, some commentators have criticized the sweeping nature of the regulation’s prohibitions and the fact that the Central Bank unilaterally took a step to regulate cryptoassets, given that the proper institution or set of institutions to regulate them has been a subject of controversy in Turkey for some time. Kemal Kilicdaroglu, the chairman of the parliament’s main opposition party, the Republican People’s Party, criticized the regulators on his social media account for not engaging in any consultation with the public and relevant stakeholders in drafting the regulation, remarking that “blockchain and crypto” are the only areas where Turkish “unicorn” enterprises may emerge and that the regulation had dealt a blow to Turkey’s fintech entrepreneurs.
In contrast, Cemil Ertem, a chief economic adviser to President Erdogan, told the press that the Central Bank’s prohibitions were appropriate given that regulatory frameworks governing the use of cryptocurrencies were either insufficient or nonexistent in Turkey and in many other countries in the world, and consequently the use of crytocurrencies as a substitute for money risked irreparable harm to institutions and individuals. Although the regulation does not prohibit the buying and selling of cryptoassets on exchanges, its issuance coincided with the collapse of one of Turkey’s largest cryptocurrency exchanges, which is reported to have victimized many investors. In a separate interview related to that event, Ertem hinted that wider regulatory efforts might be forthcoming.