Fintech Law in Turkey
Updated: May 26, 2022
The Fintech Landscape
1.1 Please describe the types of fintech businesses that are active in your jurisdiction and any notable fintech innovation trends of the past year within particular sub-sectors (e.g. payments, asset management, peer-to-peer lending or investment, insurance and blockchain applications).
It is possible to classify the applications having been carried out into the field of the financial technologies that are developing and expanding rapidly today under two main sections. The first section consists of the financial technological applications that are performed by the banks and the other section consists of the financial technological activities that are performed by the electronic money, payment organizations other than the banks. Door payment, national and international money transfer, loyalty based cashback programs and electronic money applications other than the conventional payment service provider, point of sale, bill payment are the leading and popular applications as well as the conventional fintech applications especially in recent years, Turkey. On the other hand, peer to peer crediting investment support activities are carried out by only the organizations which provide loans (banks, factoring, leasing etc.) in Turkey as they are considered as 'crediting' activities, certificates of incorporation and activity are basically subject to the Banking Law No. 5411 and the license to be received from the Banking Regulation and Supervision Agency (BRSA) pursuant to the relative legislation. Blockchain technology is planned by the Banks, and at this point some impossibilities occur considering the fact that the banking sector in Turkey is audited by the Banking Regulation and Supervision Agency in terms of technological content.
1.2 Are there any types of fintech business that are at present prohibited or restricted in your jurisdiction (for example cryptocurrency-based businesses)?
Realization of the financial services in the Turkish Legal System is basically possible only under supervision of the Banking Regulation and Supervision Agency(BRSA). All institutions which will provide financial services within this framework should obtain the certificate of activity from the Banking Regulation and Supervision Agency in accordance with the relative legislation. Therefore, execution of a financial service of which equivalent is not available in the Turkish Legal System does not seem possible. For example, a cryptocurrency-based financial facility should be evaluated within the framework of the Law on the Payment Services and Electronic Money No. 6493 being the single relevant legislation hereof. In this regard, it does not seem possible to offer a cryptocurrency-based financial facility since servers of the electronic money organizations are available in Turkey and they are audited by the Banking Regulation and Supervision Agency (BRSA).
In addition, the Law on Prevention of Laundering of Crime Revenues No. 5549 and sub-regulations thereof has made investigation of the money resources subject to each financial facility obligatory for the concerned obligors within the framework of certain rules. Therefore, all cryptocurrency-based financial facilities and activities including the bitcoin are likely to be considered among the assets which are defined in the law as not suitable for nature of the cryptocurrency and of which sources are illegal.
2 Funding For Fintech
2.1 Broadly, what types of funding are available for new and growing businesses in your jurisdiction (covering both equity and debt)?
A special financing model has not been regulated for the companies which will be active in the fintech area, Turkish Legal System unlike the conventional financing methods. Equity and debt loan financing options that are available all over the world are also available in Turkey. In addition to this, the company's shareholders can capitalize the monies, receivables, negotiable instruments and shares of the capital companies, intellectual property rights, movables and all kinds of immovables, right of utilization and use on the movable and immovable properties, personal effort, commercial standing, commercial enterprises, transferable electronic medias that are utilized properly, the values such as fields, names and signs, mining licenses and such other rights having an economical value, and all kinds of values that can be transferred and utilized in cash in accordance with the general provisions contained in the Turkish Commercial Code No. 6102. Notwithstanding that, the minimum capital requirements paid in different amounts depending on the activity types in terms of the companies of which establishment and activities are subject to stricter conditions, in other words, which are incorporated under the Banking Regulation and Supervision Agency (BRSA) have been regulated. For example; 5 million TRY for establishment of the e-money or payment system companies; 10 million TRY for establishment of the asset management companies, 30 million TRY for the banks and at least 20 million TRY for the factoring firms.
2.2 Are there any special incentive schemes for investment in tech/fintech businesses, or in small/medium-sized businesses more generally, in your jurisdiction, e.g. tax incentive schemes for enterprise investment or venture capital investment?
There are not special subsidies for the investments made in the Fintech area, Turkish Legal System. However, the following general incentives can be applied on the investments made in the field of Fintech or the companies which will be established to operate in this area.
For example; a certain number of tax incentives and exemptions have been regulated towards the companies established in the Technology Development Zones namely Technoparks that are founded with collaboration of the universities, research institutions and organizations and production sectors under the Law on the Technology Development Zones No. 4691.
As a matter of fact, technology/fintech companies which are very intensely integrated with the technology will particularly be able to benefit from these incentives and exemptions.
Also, earnings of the venture capital investment funds or partnerships which are incorporated in Turkey under the regulation in Article 5 of the Corporation Tax No. 5520 have been exempted from the corporation tax.
Pursuant to the Stamp Tax Law No. 488, the agreements which are regulated with regard to the exclusive venture funds of the venture capital investment trusts and venture capital investments funds, and other papers issued for these agreements have been exempted from the stamp tax.
The monies that are obtained with the transactions made in the venture capital investment funds and the venture capital investment associations pursuant to the Law on Expenditure Taxes No. 6802 are exempted from the bank and insurance transactions tax. Furthermore, the transactions within the scope of the Banking and Insurance Transaction Tax are exempted from the VAT.
All of the income obtained from the Venture Capital Investment Fund participation shares by the full and limited taxpayer real persons are subjected to a 10% withholding tax within the scope of the paragraph (1), Provisional Article 67. The revenues obtained from the participation shares of all the funds mentioned above are taxed at 0% for both the full taxpayers and limited taxpayer corporations pursuant to paragraph (1), Provisional Article 67.
The tech/fintech investment partnerships and the companies that will operate in this area can benefit from all of these tax incentives and discounts.
2.3 In brief, what conditions need to be satisfied for a business to IPO in your jurisdiction?
Although special conditions have not been brought in terms of the companies and partnerships which operate in the Fintech area to take the companies public in Turkey, general provisions which are regulated in the Capital Market Law No. 6362 shall also be valid for them. Accordingly, the companies that will go public and apply to the Capital Markets Board and Borsa Istanbul should;
· split their capitals into the shares,
· establish a working group consisting of mid-level managers, financial officers and public relations officers who will prepare the application procedures,
· execute an intermediary agreement with one of the intermediary firms which is entitled to go public and authorized by the Capital Markets Board (CMBs) on the webpage of the Board,
· the companies that plan to trade in the Emerging Companies Market (ECM) should enter into a Market Consultancy Agreement with a market advisor in order to carry out necessary preparations, of which minimum requirements are set by the Stock Market,
· prepare their financial statements in accordance with the Capital Market Legislation and sign audit agreements by selecting one of the independent audit firms who are authorized by the CMB and have their financial statements audited by this independent audit company,
· amend the articles of association pursuant to the Capital Market Legislation,
· determine the public offering prices and prepare necessary papers for public offering.
2.4 Have there been any notable exits (sale of business or IPO) by the founders of fintech businesses in your jurisdiction?
In 2014, share of Paybyme was purchased by the Malaysian MOLGlobal company with 9,3 million dollars at a rate of 51%.
In 2015, 25% share of hepsiburada.com being one of the popular e-commerce sites was acquired by the Dubai-based Abraaj Group.
According to the news published in 2016, Paypal rejected application of Turkey for the Abraaj Group on the grounds that all of the company servers are not available in Turkey pursuant to the relative regulations and in turn the company has announced to their customers on the website that the operations to obtain necessary permits will continue against this decision to stop company's activities in Turkey.
7% share of gittigidiyor.com being one of the popular e-commerce sites in 2016 was purchased by a recognized American auction site in exchange for 34,3 million dollars.
In the same year, 50% share of the local Ininal payment and electronic money company was purchased by Multinet affiliated to the French Up Group.
3 Fintech Regulation
3.1 Please briefly describe the regulatory framework(s) for fintech businesses operating in your jurisdiction, and the type of fintech activities that are regulated.
All the banks that will operate in the Fintech area including online banking and non-bank institutions of electronic money and payment services should be established in line with the European Union Law legislation and other regulations; particularly the Banking Law No. 5411, Payment and Instrument Consensus Systems No. 6493, the Law on the Payment Services and Electronic Money Institutions, the Law on Prevention of Laundering of Crime Revenues No. 5549 and they should make an application to the Banking Regulation and Supervision Agency (BRSA) and T.R. Central Bank in order to obtain permits thereof.
3.2 Are financial regulators and policy-makers in your jurisdiction receptive to fintech innovation and technology-driven new entrants to regulated financial services markets, and if so how is this manifested?
The financial regulators such as the Banking Regulation and Supervision Agency (BRSA), TR Central Bank are willing/innovator in the technology and finance sector of Turkey to keep the sector alive, provide circulation and keep face with the rapidly developing and changing innovations of the global world and technology (receptive). Indeed, compliance of the government incentives abovementioned and T.R. Prime Ministry Investment Support and Promotion Agency and all legislations regarding this area with the EU legislation even though Turkey is not an EU country indicates that the regulators are receptive in this area. Thus, receptiveness of the institutions and organizations facilitates entering into the market and new initiatives in the country.
3.3 What, if any, regulatory hurdles must fintech businesses (or financial services businesses offering fintech products and services) which are established outside your jurisdiction overcome in order to access new customers in your jurisdiction?
We cannot say that the cross border operations are easy in Turkey owing to the fact that these operations are difficult in all the countries due to difference in the legal systems of the countries in a general sense. However, it is possible to examine the difficulties that the foreign fintech companies (businesses which are established outside our jurisdiction) which will be active in the fintech area without exception for the domestic or foreign pursuant to the relative legislation and regulations will encounter as they act to carry on business in Turkey under two main sections. The first section is the requirement for the companies which will be active in the fintech area to obtain license from the Banking Regulation and Supervision Agency (BRSA) and permits from T.R. Central Bank and the other is taxation. Collaborations with the licensed companies or banks already operating in Turkey can be proposed as solutions to overcome the requirements that should be fulfilled to be active by establishing a company from the scratch.
4 Other Regulatory Regimes / Non-Financial Regulation
4.1 Does your jurisdiction regulate the collection/use/transmission of personal data, and if yes, what is the legal basis for such regulation and how does this apply to fintech businesses operating in your jurisdiction?
Today, developments such as increase in use of the electronic devices along with the development in technology, more adaptation of the transactions completed via the internet media to the daily life have brought about several safety problems. One of the recent studies carried out by the regulators in Turkey in order to prevent these safety problems is the Law on the Personal Data Protection No. 6698 which has recently been put into force on April 7, 2016. The Law also regulates the imprisonment and punitive fines that will be imposed on the ones who act against them as well as the rules for processing, using and transferring the personal data in the Law. As a matter of fact, this law is also applies to the fintech activities which are closely related to the technology, personal data of the customers should be processed, used and transferred in accordance with the law. Fintech activities should also be carried out by taking into account the fact that the rights to compensate customers for damages arising from the processing, using or transferring the data in contradiction with the Turkish Code of Obligations.
4.2 Do your data privacy laws apply to organizations established outside of your jurisdiction? Do your data privacy laws restrict international transfers of data?
The general rule for carrying out the transactions such as processing and transferring the personal data in accordance with the provisions in the Law No. 6698 is to obtain express consent of the concerned person without discriminating between the domestic or foreign. Transferring the data of the concerned person to the abroad without getting express consent of the concerned persons other than the cases requiring obtaining permit from the Personal Data Protection Board according to the regulation as set forth in Article 9 of the Law.
4.3 Please briefly describe the sanctions that apply for failing to comply with your data privacy laws.
In Articles 17 and 18 of the Law No. 6698, several imprisonment and punitive fines to be imposed on the ones who act against the law were regulated. In the relative articles, the ones who record the personal data in contradiction with the law by referring to the Turkish Penal Code No. 5237 were sentenced to imprisonment for six months to three years; and the ones who disclose or capture the data in contradiction with the law were sentenced to imprisonment for one year to four years, and the ones who fail to fulfill liabilities given in the Law and acts in contradiction with the Board decisions were imposed an administrative fine for minimum 5.000 and maximum 1.000.000 TRY.
4.4 Does your jurisdiction have cyber security laws or regulations that may apply to fintech businesses operating in your jurisdiction?
In the Turkish Law, there are some regulations that should be implemented in the Fintech area that is related with the cyber security and technology;
· Cyber crimes such as entering into the information system, blocking the system, deterioration, destroying or changing the data, abusing the bank or credit cards and the imprisonment and punitive fines that will be imposed on the ones who commit cyber crime as regulated in the Article 243 of the Turkish Penal Code No. 523,
· Regulations given in the Electronic Communication Law No. 5809 and the provisions regarding the imprisonment and punitive fines that will be imposed on the ones who offer electronic communication service in contradiction with the law,
· Provisions regarding the certain crimes committed in the internet media as specified in the Law on regulation of the publications on the internet and suppression of crimes committed by means of such publications No. 5651, and the punitive fines and sanctions regarding the content, place and combat through the access providers,
· Regulations in the Law on Regulation of the Electronic Commerce No. 6563 and the provisions concerning the punitive fines to be imposed on the ones who act in contrary with the regulations and law,
· Regulations in Preparation and Implementation of the Technical Legislation No. 44703 and the regulations pertaining to the punitive fines to be imposed on the ones who act in violation of the law as well as the Banking Law No. 5411 and the Consumer Law No. 6502 are examples thereof.
4.5 Please describe any AML and other financial crime requirements that may apply to fintech businesses in your jurisdiction.
The money laundering crime that concerns the bank and non-bank companies which are active in Fintech area was regulated in Article 282 of the Turkish Penal Code No. 5237 as "exporting the asset values obtained from a crime necessitating minimum six months or longer imprisonment to the abroad or concealing illegal source of these values or exposing them to various operations in order to form an opinion that as if these assets were obtained by a legal mean, purchasing, accepting, keeping or using these assets by knowing this situation".
However, the crimes related to the terrorism and terrorism financing that are covered in the Law No. 6415, the crime to act against the notification liability in cases of any doubt or issue that requires to suspect about the assets subject to the transactions that are carried out with respect to the ones who provide and use banking, lending or other financial facilities in the Law No. 5549 by illegal means and other financial crimes as set forth in the Banking Law No. 5411 can be given as examples for the crimes that are related with the banks and other companies which will operate in the fintech area.
4.6 Are there any other regulatory regimes that may apply to fintech businesses operating in your jurisdiction?
The Consumer Law No. 6502, the Electronic Communications Law No. 5809, the Law on Regulation of Publications on the Internet and Suppression of Crimes Committed by means of such Publications No. 5651, the Law on Regulation of the Electronic Commerce No. 6563, the Law on Preparing and Implementing the Technical Legislation for the Products No. 4703, the Capital Markets Law No. 6362, General Communiqué of 5th Financial Crimes Investigation Board, Regulation on Distance Contracts are other regulations that must be considered in management of the activities in the field of Fintech.
5 Accessing Talent
5.1 In broad terms, what is the legal framework around the hiring and dismissal of staff in your jurisdiction? Are there any particularly onerous requirements or restrictions that are frequently encountered by businesses?
There is not any other special arrangement that should be considered in this field other than the arrangements included in the Labor Law No. 4857 that is applied to the employers and workers in all fields including the Fintech in the Turkish legal system and that regulates the rights and responsibilities of the workers who are employed on the basis of an employment agreement executed with the employers.
5.2 What, if any, mandatory employment benefits must be provided to staff?
There is not a specific regulation for this area other than the detailed arrangements given in the Labor Law No. 4857. In the Labor Law, there are regulations that the employers should obey; mandatory minimum wage, health insurance, workplace safety, maximum working hour, severance and notice payments.
5.3 What, if any, hurdles must businesses overcome to bring employees from outside your jurisdiction into your jurisdiction? Is there a special route for obtaining permission for individuals who wish to work for fintech businesses?
Pursuant to the International Labor Law No. 6735, the Law on Work Permits of the Foreigners No. 4817, the Banking Regulation and Supervision Agency (BRSA) carries out a detailed research on the bank, factoring, leasing, electronic money and payment organizations of which incorporations are subject to the license and permit as well as the general procedures to be implemented such as residence permit and work permit of the foreigners.
6.1 Please briefly describe how innovations and inventions are protected in your jurisdiction.
Turkey is a state party for many agreements such as Patent Cooperation Treaty (PCT), European Patent Convention (EPC), Strasbourg Convention regarding International Classification of the Patents, and it has adapted its own domestic law in accordance with these agreements. Indeed, the applications and registration processes that are carried out before the Turkish Patent and Trademark Authority within the scope of the Industrial Property Law No. 6769 which is enforceable in the domestic law as well as the international agreements and the relative legislation are protected.
6.2 Please briefly describe how ownership of IP operates in your jurisdiction.
Turkey is one of the member countries of the World Trade Organization and also one of the state parties to the conventions such as Paris Convention, TRIPS, Madrid Protocol, Nice Convention, Hague Convention and it has integrated these agreements with its own domestic law. Therefore, the intellectual property rights are under protection in our country pursuant to the Industrial Property Law No. 6769, the Law on Intellectual and Artistic Works No. 5846 which are in compliance with the International Agreements and other regulations.
6.3 In order to protect or enforce IP rights in your jurisdiction, do you need to own local/national rights or are you able to enforce other rights (for example, do any treaties or multi-jurisdictional rights apply)?
The local and foreign right owners are equally protected as Turkey has adapted these agreements to its domestic law as the state party to many international IP agreements abovementioned.
6.4 How do you exploit/monetize IP in your jurisdiction and are there any particular rules or restrictions regarding such exploitation/monetization?
Turning the right into cash by means of the conventional legal proceedings which are applied all over the world such as license, transfer, purchase, sell on the IP works pursuant to the international conventions, the Industrial Property Law No. 6769 and the Law on Intellectual and Artistic Works No. 5846 is possible in Turkey.
LAW FIRM & AUTHOR DETAILS
Please provide the following additional details:
Brief promotional information of law firm / department (approx. 150 words):
Erciyas provides consultancy on company official licensing of E-money companies through Turkish Banking Regulation and Supervision Agency. Furthermore, the firm drafts customer and framework agreements with regard to products which are sold by an e-money company.
The firm also advises not also on the integration of e money companies into international and national trade infrastructure but also international and national security and technical certifications of e-money and electronic payment systems. The firm practices optimizing goods and services of companies which operate in IT as per new regulated Data Protection Law in Turkey, and in cooperation with business partners, the firm also provides legal services integration of artificial intelligence products into work flow among big companies.
Moreover, the firm particularly leads e-commerce companies in consequences of electronic agreements, which rights do their customers (consumers) have in accordance with these electronic agreements, and preparing technical infrastructures such as diversification of payment systems of sale portals in compliance with administrative regulations.