Is a Turkish Crypto License Worth Applying for by Web3 Entrepreneurs?

From September 2023 to August 2024, the exchange rate between the Turkish lira and the US dollar fluctuated with a decline of 22%. For a Turkish individual sensitive to arbitrage opportunities, holding liras is undoubtedly a losing proposition, and they will certainly not miss any opportunity to convert their liras into US dollars or other assets less prone to depreciation as early as possible. A 2023 report by KuCoin stated that over 50% of Turks invest in cryptocurrencies.

Faced with such an overwhelming situation, Turkish authorities have had no choice but to embrace cryptocurrencies. Although it does not explicitly mention the rapid depreciation of the fiat lira, its "Amendment to the Capital Markets Law" (Adopted Bill on Amendments to the Capital Markets Law) reveals a sense of resignation throughout: "Although the high volatility of crypto asset price trends has made people more aware of the risks associated with these assets, households are increasingly interested in these assets, which differ significantly from assets in the current financial system. Particularly during the global pandemic, global individual attention to this sector increased, and the use of crypto asset platforms by individuals with a higher risk tolerance became very common. It is understood that in Turkey, approximately 10 million people have opened accounts and conducted transactions on crypto asset platforms. Therefore, consistent with international examples,our country also recognizes the necessity of regulating platforms. Considering the benefits of using blockchain technology in finance and other fields, and to avoid hindering the development of this innovative ecosystem, Turkish authorities have decided to implement regulations.However, the purpose is not to regulate blockchain technology itself, but to regulate trading activities of crypto assets based on this technology on platforms."

In our communications with local Turkish lawyers, we also found thatTurkey's regulation of crypto licenses is truly in an exploratory stage. Many details lack clear legal provisions, requiring constant communication with authorities to ensure compliance.

 

Applicable Scenarios

Article 3 of the "Amendment to the Capital Markets Law" stipulates that crypto asset service providers must obtainapproval from the Turkish Capital Markets Board upon establishment and commencement of operations, and may only engage in activities determined by the Capital Markets Board.A crypto asset service provider refers to platforms, crypto asset custody service providers, and other entities specified in regulations enacted under this law, providing services related to crypto assets, including the initial sale or distribution of crypto assets. A platform refers to an organization for one or more crypto asset transactions, initial sales or distributions, clearing, settlement, transfers, custody, and other potentially determined transactions.

According to Foresight News, the number of companies applying for crypto licenses has grown to 76, including new entrants such as Coinbase, KuCoin, and Gate.io. Previously recognized entities such as Binance, Bitfinex, and OKX have also participated in the application process.

Whether from the perspective of legal provisions or market response, exchanges are currently the main force in applications.

 

How to Apply

Prepare Necessary Documents

According to the provisions of the Amendment, applicants need to prepare a series of documents, which may include but are not limited to information on shareholders and key executives, organizational charts, detailed descriptions of technical systems and information security, etc.

Establish a Local Entity

Global exchanges operating in Turkey must establish a local entity, which must provide proof of reserves,and maintain at least 50 million TRY (approximately USD 150,000) in designated local bank accounts。

Apply for License

Submit an application to the Turkish Capital Markets Board, including all necessary documents and information. The Amendment mentions that crypto asset service providers must obtain approval from the Board to conduct activities.

Comply with Technical Standards

According to the Amendment, applicants need to ensure that their technical systems and information security comply with the standards set by the Scientific and Technological Research Council of Turkey.

Await Review

After submitting the application, await review by the Capital Markets Board. The Board will evaluate the applicant's qualifications, technical systems, financial status, etc., in accordance with the provisions of the Amendment.

Ongoing Compliance

After obtaining the license, service providers must continuously comply with all relevant laws and regulations, and make necessary adjustments according to market developments and regulatory requirements,including the requirement that currencies listed on the platform are subject to review by authorities。

Consequences of Operating Without a License

Exchanges without a Turkish license are prohibited from engaging in any marketing activities. They cannot publicly market in Turkish or provide services in Turkish; otherwise, they will be involved in criminal offenses.

 

Process and Costs

The deadline for the first batch of applications was early September 2024, and the deadline for the next batch is early November 2024. The average application processing time is approximately two months.

The main costs involved in applying for a Turkish crypto license are:Application fees (fees for obtaining approval from the Turkish Capital Markets Board), legal fees, technical infrastructure costs (due to data compliance requirements), audit and reporting fees, personnel costs (mainly for hiring compliance officers), insurance, training, and certification.

However, it should be noted that since Turkish authorities are still in an exploratory stage regarding the detailed rules for crypto licenses, and given that the local Turkish crypto market was previously unregulated, various parties are still exploring issues such as what qualifications a compliance officer must possess for applicants to balance costs and requirements. However, to our knowledge,based on current applicants, the total cost for the entire process ranges from 2,750,000 TRY ($81,572) to 10,050,000 TRY ($311,458).

Additionally,the corporate tax rate applicable to most Turkish companies is currently 25%. If conducting business in Turkey, tax burden issues must be considered.

 

Mankun Lawyers' Summary

For cryptocurrency trading platforms and related service providers, the Turkish crypto license is undoubtedly an option worth considering. Although Turkey's regulatory framework is still developing and improving, bringing inevitable uncertainty and costs, the market still holds immense potential and opportunities due to the continued depreciation of the Turkish lira and the growing demand for crypto assets among the public.

Applying for a Turkish crypto license,in addition to enabling lawful and compliant business operations, allows leveraging unique opportunities in the Turkish market,especially as crypto assets increasingly become tools to combat inflation and currency depreciation. However, applicants need to weigh the current regulatory uncertainty and compliance costs in Turkey and be prepared to maintain continuous communication with local regulatory authorities. For enterprises willing to take risks and capable of navigating a market characterized by volatility and uncertainty, a Turkish crypto license may bring unexpected benefits.