The government of Turkey, which has one of the largest cryptocurrency economies globally, is anticipated to introduce legislation related to crypto sometime this year. In January, Turkish Treasury and Finance Minister Mehmet Simsek stated that local crypto regulations were nearly complete. Although many expected the Turkish parliament to begin regulating the crypto market early in 2024, the draft legislation has yet to be presented.
Despite the lack of crypto legislation in Turkey, there are already some “light” regulations in place to govern the market. Ismail Hakki Polat, a local cryptocurrency mentor, explains that there are currently minimal regulations targeting crypto in Turkey, but they are not established by parliament. The Central Bank of the Republic of Turkey initiated one regulation in 2021, which prohibits crypto holders from using cryptocurrencies like Bitcoin (BTC) for payments as they are not recognized as legal tender. However, since it is not a regulation passed by parliament, the consequences and penalties for violating these rules are unknown.
Another regulation in place pertains to Anti-Money Laundering (AML) measures and operates under the supervision of the Financial Crimes Investigation Board, also known as MASAK, which is part of the Ministry of Finance. This regulation requires exchanges to collect certain Know Your Customer (KYC) data from users to prevent illicit activities such as money laundering and terrorism financing. Additionally, the Capital Markets Board of Turkey (CMB), known as SPK, has issued guidance stating that no individual or institution related to the authority should trade cryptocurrencies. This includes Turkish banks, broker-dealers, and others. However, this regulation is considered outdated as it was issued in 2017.
Turkey is currently the fourth-largest crypto trading market in the world, with an estimated trading volume of $170 billion. It surpasses countries like Russia, Canada, Vietnam, Thailand, and Germany in terms of crypto adoption. In September 2023, the Turkish lira became the top cryptocurrency trading pair on Binance, accounting for 75% of all fiat trading volume. This surge in popularity was attributed to a significant influx of crypto investors in the Turkish market. Studies indicate that Turkey’s adoption rate has more than doubled in recent years, reaching 40%, with approximately 20 million Turkish citizens holding crypto.
The introduction of crypto regulations in Turkey in 2024 is aimed at helping the country exit the Financial Action Task Force’s (FATF) “gray list” associated with Anti-Money Laundering (AML) measures. Turkey was placed on the “gray list” in October 2021 due to disproportionate regulation of the nonprofit organization sector. To be removed from the list, Turkey must address 39 action items, including those related to the crypto industry, to ensure virtual assets are not used for criminal activities.
Turkey’s upcoming crypto legislation will primarily focus on regulating and licensing crypto exchanges, defining their liabilities and responsibilities as virtual asset service providers (VASPs) according to the FATF’s framework. The law will also establish standards for safe custody of crypto assets by VASPs to ensure investor protection. This aspect became a significant concern in Turkey following the collapse of the Thodex crypto exchange in April 2021. The legislation is also expected to provide a legal foundation for crypto taxes in Turkey, with plans to impose low-rate transaction taxes and require citizens to declare their earnings on crypto.
The exact timing of the introduction of Turkey’s crypto legislation remains uncertain, despite expectations for progress earlier this year. Some speculate that the timing may be tied to the upcoming meeting of the U.S. Office of Foreign Assets Control in June. The regulation is expected to be passed and in effect before that meeting, with a possible release in May or June.