Population: 84 million

Wealth in domestic bank deposits: 489 billion USD (November 2023)

Offshore expatriated wealth: 26.7 billion USD

Main offshore banking locations: Malta, Cayman Islands, British Virgin Islands, Bahrain

Number of individual brokerage accounts: 1.8 million (2020)

Crypto adoption (% of population): 4.7 million (5.5%)

TLDR

Turkey’s economy is recovering from a currency crisis and is implementing reforms to attract foreign investment. The government is taking steps to liberalize foreign exchange regulations and facilitate cross-border transactions. Equity markets are dominated by Borsa Istanbul, which imposes strict disclosure and corporate governance rules on listed firms. Qualified investors enjoy lighter regulations when investing in certain assets. Cryptocurrency adoption is increasing, prompting new AML rules and proposals to regulate cryptoasset service providers. The financial regulatory architecture is transitioning towards EU standards.

Exchange controls

Historically, Turkey has imposed stringent exchange control rules that tightly governed the amount, manner, and purpose of foreign currency that could be bought and sold domestically. However, in recent years, Turkey has implemented reforms aimed at liberalizing foreign exchange regulations in order to attract greater foreign investment flows.

A major reform came in April 2022, when Turkey’s Ministry of the Treasury and Finance published amendments to the country’s foreign exchange regulations requiring that private persons and entities resident in Turkey make and accept payments for contracts for the sale of movable assets exclusively in Turkish lira. While parties can still freely set payment obligations in foreign currency per their contracts, the actual payments must now be made in equivalent Turkish lira amounts.

This amendment modified Article 8(9) of Communiqué No. 2008-32/34, which contains the main rules on use of foreign currencies and precious metals in domestic transactions. The new Article 8(9) prohibits contracts between Turkish residents regarding sale of movable assets, excluding vehicle sales, from containing foreign currency or foreign currency pegged payment obligations. Instead, such contracts must have payment obligations fulfilled in Turkish lira which the obligee must accept.

On the other hand, Article 15 allows public entities to retain foreign currency denominated contracts and payments, except for real estate sale/lease contracts. This reform aims to curb the use of foreign currency in domestic transactions, while still permitting it for foreign trade and investment. Additional easing of foreign exchange rules is expected to continue, as Turkey seeks to boost international economic engagement and attract capital inflows.

Securities regulation

The main legislative framework governing Turkey’s capital markets and securities regulation consists of the Capital Markets Law (CML), the Turkish Commercial Code, and the communiqués issued by the Capital Markets Board (CMB) as the main regulatory authority.

The CMB is responsible for regulating and supervising capital markets, including by issuing communiqués and directives across areas such as investment firms, collective investment schemes, and public offerings of securities. Key CMB communiqués include those governing shares, prospectuses, material event disclosures, corporate governance, and rights issues.

The Istanbul Stock Exchange (Borsa Istanbul) serves as the sole exchange entity in Turkey, formed by the merger of the Istanbul Stock Exchange, Istanbul Gold Exchange, and Derivatives Exchange. It operates the main equity, debt securities, derivatives, and precious metals markets. Borsa Istanbul enforces stringent listing requirements and ongoing disclosure standards for public companies under its Listing Directive.

Both the CMB and Borsa Istanbul oversee securities issuers and intermediaries such as banks and brokerages to ensure compliance with capital markets legislation and investor protection. The CMB in particular wields broad investigative and sanctioning powers. It aims to continually upgrade Turkey’s regulatory framework in line with EU standards.

This robust regulatory architecture provides assurance to investors regarding market integrity and transparency for Turkish securities. The CMB and Borsa Istanbul also grant licenses to investment firms and other capital markets institutions.

Qualified investors

The Capital Markets Board (CMB) has defined distinct investor categories within the Turkish securities markets, including the qualified investor segment. Qualified investors are deemed to possess the sophistication to analyze complex investments with reduced regulatory protection.

Specifically, qualified investors refer to those classified as professional clients under the CMB’s regulations, as well as individuals or entities opting to be classified as professional clients. The criteria to be considered a professional client include:

• Legal entities such as banks, investment firms, pension funds, and public institutions automatically qualify.
• Firms with total assets above TRY 50 million, annual net sales exceeding TRY 90 million, or shareholders’ equity over TRY 5 million.
• Individuals with financial investments of over TRY 1 million in value.
• Entities or persons with adequate trading activity, capital markets work experience, or certain licenses.

Additionally, anyone holding the Capital Markets Activities Advanced Level License or Derivative Instruments License can request to be classified as a professional client and thereby become a qualified investor.

Qualified investors may participate in exempt or specialized offerings such as private equity funds, pre-IPO placements, and certain derivatives. Their lighter regulatory treatment balances investor protection with capital formation. The qualified investor regime functions alongside Turkey’s overall robust investor protection framework.

Cryptocurrency regulation

Cryptocurrency adoption in Turkey has been growing rapidly, with latest estimates putting crypto ownership at around 6% of the population or 5 million users. However, cryptoassets remain largely unregulated so far.

The government is now in the process of drafting legislation to establish a regulatory framework for cryptocurrencies and cryptoasset service providers. The proposals would designate the Capital Markets Board (CMB) as the supervising authority over any licensed crypto trading platforms, exchanges, custodians and other service providers.

The draft law aims to promote investor protection while allowing continued development of the cryptoasset industry. Under the law, cryptoasset holders could choose to self-custody their assets or use regulated crypto custodians approved by the CMB. Penalties would apply for unlicensed cryptoactivities.

Currently, rules prohibit the direct use of cryptoassets for payments and money transfers. However, purchasing, trading, and transferring crypto is still allowed. The Central Bank of Turkey is also researching a possible official digital Turkish lira as a centralized cryptocurrency.

Industry estimates put the number of crypto users in Turkey at around 5 million, representing nearly 6% of the population. Regulation is intended to provide standards and oversight for this rapidly emerging alternative asset class, while supporting innovation in blockchain technologies.