Ercüment Erdem Att. Ekin Ersanli

Important Changes in Capital Markets Legislation

January 2018

Introduction

Two significant pieces of Turkish capital markets legislation[1], i.e. Decree No. 32 on The Protection of the Value of Turkish Currency that was published in the Official Gazette dated 11.08.1989 and numbered 20249 (“Decree No. 32”), and the related Communique on Decree No. 32 on the Protection of the Value of Turkish Currency numbered 2008-32/34 (“Communique No. 2008-32/34”) published in the Official Gazette dated 28.02.2008 and numbered 3012, were amended through publication in the Official Gazette dated 25.01.2018 and numbered 30312.

The Communiqué on Decree No. 32 on the Protection of the Value of Turkish Currency (“Communique No. 2018-32/45”) was published in the Official Gazette dated 30.01.2018 and numbered 30317.[2]

In this Article, the amendments to Decree No. 32 and Communique No. 2008-32/34, and important points regarding the new Communique No. 2018-32/45, shall be underlined.

Amendments to Decree No. 32

The above-mentioned amendments provide limitations, especially with respect to foreign exchange loans. Hereby, it is indicated that persons located in Turkey cannot utilize foreign exchange loans.

Moreover, two new concepts are identified; “Foreign exchange income,” which is defined as “income obtained through export, transit commerce, sales considered as export, sales and deliveries and foreign exchange acquisitive services and activities, which are determined by the related legislation,” and “credit balance,” which is defined as the “sum of cash foreign exchange loans that is not reimbursed, which are provided through domestic means or from abroad.

Therefore, it is stipulated that foreign currency denominated loans from abroad may not be obtained for persons resident in Turkey who do not have foreign currency income. However, exceptions are provided, stating that the foreign currency income condition shall not be required for a limited number of circumstances, such as the foreign currency denominated loans to be utilized by public authorities and institutions, banks and financial leasing companies, factoring companies and financing companies that are resident in Turkey. According to the new amendment, banks and financial leasing, factoring and financing companies that are located in Turkey can issue foreign-currency loans to each other under their own practices, save for the related provisions of legislation, directly, or by means of participation to the international syndication, without limit of maturity.

Lastly, the provision stipulating that residents in Turkey are free to obtain commodity loans in accordance with the importation and exportation regimes, is elaborated upon, in detail, through the new Article 17A of Decree No. 32, with regard to the domestically provided commodity loans that were available prior to the amendments. The same Article stipulates that the residents in Turkey who do not have foreign exchange incomes shall not domestically obtain foreign currency denominated loans, as well. In parallel with the provisions regarding the utilization of the foreign currency denominated loans from abroad, it is stipulated as an exception that the foreign currency income condition shall not be required for the foreign currency denominated loans to be utilized by public authorities and institutions, banks and financial leasing companies, and factoring companies and financing companies that are resident in Turkey.

Amendments to Communiqué Numbered 2008-32/34

Detailed regulations are provided in Communique No. 2008-32/34, in line with the amendments in Decree No. 32. In Article 9 of Communique No. 2008-32/34 it is stated in relation to the purchase and sale of the securities and other capital market instruments from abroad that residents in Turkey are free to purchase and buy leveraged instruments, or the derivative financial instruments that are subject to the same provisions with the leverage transactions, only through the institutions that are authorized by the Capital Markets Board. In addition, in Article 11 of the said Communique No. 2008-32/34, detailed provisions are provided in relation to the foreign currency incomes and loan balances with regard to the foreign exchange loans to be obtained, domestically or from abroad, by residents in Turkey.

Communiqué Numbered 2018-32/45

The above-mentioned Communiqué numbered 2018-32/45 determines two types of authorized establishments, those identified as Group A and Group B, and determines the framework of authorization. Accordingly:

Group B authorized institutions may engage in below-stated activities:

  • Purchasing and selling foreign currencies, except for deposit monies;
  • Exchanging foreign currencies, except for deposit monies with smaller or larger reduction of print pastes with foreign currencies, except for different types of deposit monies;
  • Purchasing cheques paid by foreign currency pursuant to the procedures and principles determined by the Central Bank;
  • Purchasing and selling printed gold produced by the General Directorate of Mint and Stamp Print House, and standard, unprocessed gold shaped as bars and bullion; and
  • Purchasing and selling foreign currencies, and exchanging with foreign currencies of the same kind, by transfers made through means of banking with the banks, authorized institutions and customers; on the condition that a transfer order is granted, or physical delivery subject to the transaction, is made within the same work day.

On the other hand, Group A authorized institutions may engage in the below-stated activities, in addition to the areas of activity of the Group B institutions:

  • Importing and exporting of precious stones, standard and non-standard unprocessed precious metals, and making transactions related to the precious metals and stones maintained in the Stock Market under the provisions of related regulations and legislation, on the condition that the institution is a member of the Stock Market;
  • Purchasing and selling foreign currencies, and exchanging with the foreign currencies of the same type by means of institutions that can make transfers with the banks, authorized institutions and customers, on the condition that a transfer order is granted, or physical delivery subject to the transaction, is made within the same work day;
  • Acting as electronic money establishments and representatives of paying agents;
  • In the event that Undersecretariat of Treasury grants permission, purchasing and selling foreign currency and related transactions by means of money machines in the head offices and/or branches and other places that are deemed to be appropriate;
  • Purchasing and selling foreign currency up to ten thousand United States dollars by means of pre-payable cards and without any limit of amount by means of bank cards;
  • Dispatching foreign coins Turkish Lira treasury notes overseas under the procedures and principles that shall be determined by the Undersecretariat of Treasury, and with permission of the Undersecretariat of Treasury; and,
  • Carrying out other activities that are deemed to be appropriate by the Undersecretariat of Treasury.

Both type A and type B institutions are limited to the above-mentioned areas of activities. Permission of the Undersecretariat of Treasury is necessary for the establishment of the said institutions. Moreover, in Communiqué No. 2018-32/45, various terms of foundation for founding partners, general managers, members of the board of directors, authorized signatories and internal control officers, are determined for both type A and type B institutions. Additionally, information and documents that shall be demanded from the persons located in foreign countries for the permission of foundations are indicated. Whereas, Group A authorized institutions are subjected to the permission of the Undersecretariat of Treasury in order to open new branches, opening new branches is not possible for Group B institutions. Terms and principles regarding work and operation of the said institutions, including, but not limited to, the institutional management and internal systems, change of address and title, are expressed in detail in Communiqué numbered 2018-32/45.

Conclusion

The amendments in Decree No. 32 shall enter into force on 02.05.2018. The Amendment stipulated under Article 9 of Communique No. 2008-32/34 entered into force through publication and other amendments to Communique No. 2008-32/34 shall enter into force on 02.05.2018.

According to the temporary provisions added to Decision No. 32, foreign exchange loans that stand open as of 02.05.2018, which is the date of entry into force of the Decision according to the temporary provisions, and which are obtained by persons located in Turkey, or abroad, cannot be renewed as foreign exchange loans, except for those that fall under the established context of the above-mentioned provisions. Also, foreign exchange loans cannot be renewed as foreign currency denominated loans. Moreover, according to the temporary provisions, foreign exchange loans and foreign currency denominated loans that have been used prior to 02.05.208 shall be included in the calculation of the credit balance.

Amongst the amendments that have been summarized in this Article, especially limitations regarding foreign exchange loans, shall have an impact on the practice with regard to the operation of the capital markets. Thus, these Amendments that have been published in the Official Gazette dated 25.01.2018 should be taken into consideration, especially by the legal persons that plan to use foreign exchange loans and foreign-currency loans.

[1] See http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/eskiler/2018/01/20180129.htm&main=http://www.resmigazete.gov.tr/eskiler/2018/01/20180129.htm and http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/eskiler/2018/01/20180129.htm&main=http://www.resmigazete.gov.tr/eskiler/2018/01/20180129.htm.

[2] See http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/eskiler/2018/01/20180130.htm&main=http://www.resmigazete.gov.tr/eskiler/2018/01/20180130.htm.