Technical Regulation of the Crypto Asset Ecosystem in Turkey

I. The Role of Institutions in the Regulation of the Crypto Asset Ecosystem in Turkey

On July 2, 2024, with amendments to Capital Markets Law No. 7518 in Turkey, regulations concerning crypto asset service providers (CASPs) were implemented. The Capital Markets Board (CMB) has been designated the primary authorized institution for CASPs in Turkey. The CMB serves as the primary supervisory and regulatory body for these providers. Additionally, the Banking Regulation and Supervision Agency (BRSA) is authorized for banks, and the Financial Crimes Investigation Board (MASAK) is responsible for preventing money laundering and terrorism financing. For technical matters, the Scientific and Technological Research Council of Turkey (TÜBİTAK) has been appointed as the authorized institution for CASPs.

TÜBİTAK’s role is crucial for Turkey’s crypto asset ecosystem, as information systems and technological infrastructures are critical components for CASPs. The technical requirements outlined in the regulations are perhaps the most significant factors in making vital business decisions, such as starting, continuing, or terminating operations.

II. Regulation Process and TÜBİTAK

Since initiating the regulation process for CASPs in Turkey, TÜBİTAK has not yet announced any criteria or principles regarding technical matters. This situation can be explained by TÜBİTAK’s efforts to establish criteria through comprehensive stakeholder studies.

The TÜBİTAK Blockchain Laboratory determines the necessary criteria for CASPs. This unit has been conducting R&D studies in the blockchain field since 2017. As a competent and experienced institution in this technology, the TÜBİTAK Blockchain Laboratory is leading regulatory efforts for CASPs.

In an e-meeting with the Crypto Legal and Compliance Group (C-LCG/K-HUG: https://t.me/kriptohukuk) on November 15, 2024, Dr. Taner Dursun, the manager of the TÜBİTAK Blockchain Laboratory, presented TÜBİTAK’s approach to CASP regulation and provided information about ongoing studies. According to Dr. Dursun, the TÜBİTAK Blockchain Laboratory is conducting studies that promote the sector and support technological developments in Turkey without compromising security. This process is managed through consultations with stakeholders within the crypto asset ecosystem.

After gathering feedback from industry stakeholders, TÜBİTAK will evaluate and announce the necessary technical criteria. However, the regulation process will not end with announcing these criteria; it will continue with updates based on technological developments and cyber threats.

III. TÜBİTAK’s Position Regarding Crypto Assets in Regulation

TÜBİTAK will actively participate in regulations concerning crypto assets and CASPs. As stipulated in the law, the portion of CASPs’ revenues allocated to TÜBİTAK will be used to further develop blockchain technology in the country.

Studies on crypto assets include determining the basic rules for the listing and delisting processes of crypto assets by CASPs. This involves requirements such as CASPs developing policies, conducting risk analysis processes, maintaining auditable records, and categorizing and announcing crypto assets based on various risk classes. The CMB also considers creating gray and black lists to announce risky crypto assets. If this mechanism is implemented in the final regulation, CASPs cannot list crypto assets included in the CMB’s blacklist.

TÜBİTAK is also working on various asset classes, including stablecoins, RWA tokens, meme coins, exchange coins, and privacy coins. Additionally, technology assessment reports prepared by TÜBİTAK for coins whose value cannot be separated from their technology—referred to as technology coins in the ecosystem—will be necessary for their trading on CASPs.

IV. Technical Criteria for Crypto Asset Service Providers

One of TÜBİTAK’s current focal points for CASPs is wallet security. Turkey-specific solution models for wallet security are being evaluated. One proposed model involves crypto exchanges holding 95% of customer crypto assets in one or more custody institutions authorized by the CMB, with the remaining 5% retained by the exchange as liquid reserves.

Studies on hot wallets, cold wallets, and warm wallets are still in progress. The possibility of crypto exchanges not holding any wallets is also under consideration. Additionally, efforts are being made on CASPs’ integration with the Central Securities Depository (MKK) and MASAK, as well as on solutions for the travel rule.

TÜBİTAK’s technical criteria for CASPs will not be completed all at once. Regulations will be announced gradually and later detailed, allowing the regulation process to progress in stages. While this may incur some costs for CASPs, these are considered negligible. The primary goal is to establish a secure crypto asset ecosystem in Turkey from a technical standpoint. This approach aims to position Turkey as a more trusted country for CASPs within the global crypto asset ecosystem.

V. Contributions of Regulation to the Crypto Asset Ecosystem’s Workforce

With the technical criteria established by TÜBİTAK, it is anticipated that CASPs may be required to employ expert personnel in new roles. Roles such as cryptologists, blockchain experts, and token listing specialists are among those considered for mandatory employment. Furthermore, authorizing certain companies for the certification processes of critical components used in technological infrastructures will contribute to increased employment within Turkey’s crypto asset ecosystem.