15th November 2023 – (Ankara) Turkey is set to introduce new regulations to govern the crypto market, with a particular emphasis on licensing and taxation, according to sector officials. The move comes as Turkey, the world’s fourth-largest crypto-trading country, aims to be removed from the Financial Action Task Force’s (FATF) “grey list” of nations at risk of financial crimes.
The Turkish government pledged to implement these regulations last month, as the country experiences a surge in crypto trading driven by high inflation and a weakened national currency, the lira.
Bora Erdamar, director at the BlockchainIST Centre, a blockchain technology research and development centre, stated that the forthcoming regulations will prioritize the establishment of licensing standards to prevent abuse within the system. The regulations may also include requirements for capital adequacy, enhanced digital security measures, custody services, and proof of reserves.
Turkey ranks fourth globally in terms of raw crypto transaction volumes, with approximately $170 billion traded in the past year, following the United States, India, and the United Kingdom, as reported by blockchain analytics firm Chainalysis. The firm’s crypto adoption index places Turkey in 12th position, reflecting the population’s interest in countering currency devaluation and their enthusiasm for new technologies.
In October, Finance Minister Mehmet Simsek announced that Turkey would introduce new legislation to cover crypto assets in order to comply with the FATF’s recommendations. This move aims to remove Turkey from the grey list, as being on the list can negatively impact a country’s investment ratings and reputation.
Countries on the FATF grey list are considered to be insufficiently combating money laundering and other financial crimes, and are required to actively address these deficiencies in collaboration with the FATF.
FATF’s July report expressed concerns that Turkey lacked proper regulation and identification of Virtual Asset Service Providers and their shareholders, as they were not required to be licensed or registered. Addressing this issue was the last remaining FATF recommendation for Turkey to be removed from the grey list.
The surge in Turkey’s digital currency market was fueled by years of high inflation, reaching 85% last year and standing at 61% as of last month, as well as a significant decline in the value of the lira against the US dollar. Binance Research’s survey revealed that the majority of Turkish investors entered the crypto market around two years ago, with an additional 27% joining in the last year, indicating sustained interest in the sector.
The Turkish government has stated that the regulation of crypto asset service providers and the taxation of digital virtual assets will be key areas of focus in 2024.
Binance Turkey’s CEO, Mucahit Donmez, emphasized the need for regulations to ensure the security of users’ assets and establish criteria for minimum capital requirements, listings, custody, and operational licenses for platforms. Donmez believes that such regulations will have a positive impact on the sector.
Turkey previously banned the use of crypto assets for payments in 2021 after investigations into fraud cases involving local exchanges. Some smaller cryptocurrency trading platforms also faced technical issues, causing difficulties for users to access their accounts and withdraw funds.
Onur Altan Tan, a board member at Futurance Finance Tech & Fexobit crypto currency platform, expects the forthcoming regulations to outline licensing criteria for platforms and introduce taxation for users. Tan stated that extensive work has been done on the regulations, including consultation meetings with cryptocurrency exchange firms, suggesting that they will soon be ready for submission to parliament.