First of all, it is worth mentioning that the draft bill on the law proposal on crypto assets is in the Planning and Budget Commission of the Grand National Assembly of Turkey (according to the news at the time of publication of this article, it was passed by the commission in full), and the text of the draft bill is available on the website of the Grand National Assembly of Turkey. It should also be noted that the draft bill is not a direct regulation of “crypto-assets”; it consists of making “crypto-assets” subject to the supervision of the Capital Markets Board through amendments to the Capital Markets Law.
Also it should be noted that the legislator is still not in the understanding of crypto “money”; it is still in the view that this “crypto” phenomenon is an “asset” or a “commodity”. It is seen that the most emphasized element in the draft law is “crypto asset service providers” and it is seen that it also includes sanction provisions for unauthorized crypto asset providers. According to the Draft Law, “crypto asset service providers” are
“Platforms, organizations providing crypto asset custody services and other organizations designated to provide services in relation to crypto assets, including the initial sale or distribution of crypto assets in the regulations to be made based on this Law,”
“Crypto asset custody service” is
“Storage and management of crypto assets of platform customers or private keys that provide the right to transfer from the wallet related to these assets, or other custody services to be determined by the Board”
Especially considering that there are many “crypto asset” owners in Turkey but “no” domestic wallet applications, the current draft creates the risk that many “custodial” wallet applications will become unusable in Turkey. This is because the draft bill
“Engaging in activities for residents in Turkey by platforms based abroad or offering an activity prohibited in relation to crypto assets to residents in Turkey within the scope of the regulations to be made by the Board shall also be deemed as unauthorized crypto asset service provision.”
with this provision, the Board has already explicitly declared foreign wallet applications as “unauthorized”.
WHAT IS A CUSTODIAL WALLET?
In short, it is your bank account. When you open an account in your name and keep money in your account with a bank, which is an institution of trust and established by law, the bank is an institution that has undertaken to keep your money ready for your use at your request. In order to fulfill and/or facilitate this usage obligation, banks offer many tools and services to their customers, such as account books, debit cards and, especially today, mobile banking.
A custodial wallet is a “deemed” tool/service where digital currencies (or crypto-assets) are committed by the company producing the wallet (equivalent to a bank)* to be available for use by the users of the wallet upon request. However, the most important difference is that while banks are institutions established by law, subject to very serious state supervision and called “trust institutions”, custodial wallet issuers are not subject to such supervision – due to the lack of adequate regulation almost anywhere in the world.*
*To avoid misunderstandings, the name of the institution and/or wallet providing these services will not be shared today. However, all crypto asset exchanges are also a custodial wallet service provider.
Therefore, it can be said that these custodial wallet applications, which are directly declared “unauthorized” in the text of the bill, have been made de facto obligatory to establish a representative office in Turkey.
Another interesting regulation is the regulation on the “personal liability” of crypto asset service providers. In the Draft Law it is said
“crypto asset service providers are liable for damages arising from the unlawful activities of crypto asset service providers and their failure to fulfill their cash payment and/or crypto asset delivery obligations. In the event that the damage cannot be compensated from the crypto asset service providers or it is clearly evident that it cannot be compensated from the crypto asset service providers, the members of the crypto asset service providers shall be liable to the extent that the damages can be attributed to them according to their fault and the requirements of the situation, and Article 110/B of this Law shall apply in relation to personal liability.”
In particular, the reference to Article 71 of the Code of Obligations makes the liability of crypto asset service providers a strict liability. Although it seems to be a very appropriate regulation for the persons who will receive the service, it is an unforeseeable risk for the persons and/or institutions that will provide the service. This is because, in the case of strict liability – or, in the text of the article, hazard liability – the fact that the damage has occurred due to the nature of the business gives rise to a compensation obligation in itself, and since the crypto sector in question is an IT sector, and since there is the possibility of any kind of cyber-attack at any time in IT, the damage caused by such an attack will be compensated directly from the crypto asset service providers.**
**In terms of making a comparison; when a similar attack is made on a bank (for example, a bank robbery), the bank branch manager is not obliged to personally pay the material damage caused by the robbery.
Another interesting regulation in the Draft Law is the regulation titled “Special investigation procedure for the offense of embezzlement of crypto assets”. Although the regulation refers to “special investigation procedure”, it is seen from the content of the text that there is no special investigation procedure, and moreover, there are regulations that will only affect the prosecution and even the judgment to be rendered by the court.
The provision that will affect practical life the most is at the very end, in Article 17 of the draft
“The activities of ATMs and similar electronic transaction devices located in Turkey that allow customers to convert crypto assets into cash or cash into crypto assets and to transfer crypto assets shall be terminated within three months following the effective date of the Law, and ATMs that do not terminate their activities shall be closed by the competent authorities determined in the legislation on opening and working licenses upon notification of the highest local administrative authority. The provisions of Articles 99/A and 109/A of the Law shall apply to those who continue to operate and to those who enable them to do so.”
is the provision. This is because it is regulated that the use of ATMs, which are already few in number, and POS devices, which are used much less frequently, must be terminated within 3 months following the entry into force of the law.
When we evaluate all these regulations together, it is understood that the bill is purely a monitoring and control regulation, and that crypto asset service providers are also asked to think carefully before starting to provide this service due to the previous fraud incidents.
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