Article on Stillbirth of Legality of The Cryptocurrency in Turkey
On April 16th of 2021, close to midnight, a directive was published. It was a piece of legislation regulating the cryptocurrency for the first time ever in Turkey. And ironically, this new regulation was actually banning the area, in a way stillbirth of legality of the cryptocurrency. Even more ironic is that Turkey ranks at the top four countries in their citizens using crypto currency.
The directive entering into force on April 30, 2021 prohibits the use of cryptocurrencies as a form of payment as well as providing such services. It also prevents payment and electronic money institutions to act as intermediary to the trading, custody and transfer platforms. Finally, payment service providers are also prohibited from developing business models to use crypto assets or even providing a service based on these business models during payment services and electronic money issuance.
Interesting point is that crypto asset, not the crypto currency, has been defined in the directive. It is actually an indication that the law makers treat crypto currencies as a form of intangible asset not as a form of payment.
Central Bank of Turkey issued a press release later that cryptocurrencies are excessively volatile and can be used for illegal activities, indicating the risks related to anonymous nature of the transactions, therefore, the anti-money laundering issues. The bank also mentioned that crypto assets are not subject to any regulation and not supervised by a central regulatory authority or a mechanisms.
These may all be true, but is banning, rather than regulating, really the solution to the risks? Measures could have been more in the line of bringing some standards to the sector and strengthening firms servicing the area in order to give trust to the citizens. Couple of options immediately come to mindfor regulating the sector are specifying/limiting the areas that crypto currencies can be used, structure of the firms as well as registration requirements thereof and maybe minimum reserve obligations.
Even though money laundering threats are valid concerns for all financial instruments, especially the ones brought by a new technology as they still sound very complicated to most of the people, looking at the rest of the world to see how such risks are handled may give an idea.
According to guidance published by the Financial Action Task Force, countries are required to evaluate their risks and mitigate them for virtual asset financial activities and providers; bring measures, such as, licensing or registration and make them scrutinized by national authorities. While Singapore brought the licensing requirement to comply with Anti-Money Laundering regulations for crypto businesses operating in the country, EU has adopted another Anti-Money Laundering Directive which mandates crypto service providers to register and be subject to know-your-customer and anti-money laundering requirements. In the meantime, according to guidance of the Financial Crimes Enforcement Network in the States, there is a requirement of centralized repository for crypto currency. Finally, under regulation of cryptocurrency in Canada, the people dealing in cryptocurrency are bound by the same anti-money laundering regulations as those dealing in bank authorized currency.
Turkey’s ban of crypto currency as a first regulation of the area is not only ironic but also unfortunate, but since the reaction of the market seems strong, truly regulating the virtual money may be expected in the future. Let’s just hope that growing regulatory efforts around the world will be a reference to decision makers in Turkey.
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