Turkey to Introduce New Regulations on Crypto Market to Address Financial Crime Concerns
Turkey is set to implement new rules to regulate the country’s crypto market, with a particular focus on licensing and taxation, according to sector officials. The move comes as Turkey aims to improve its international standing and get off the “grey list” of countries at risk of financial crimes, as designated by the Financial Action Task Force (FATF), a Paris-based financial watchdog. The regulations are a response to a growing demand for alternative assets in the country, driven by soaring inflation and a plummeting lira currency.
One of the key priorities of the new regulations will be the introduction of licensing standards to prevent abuse of the crypto system, said Bora Erdamar, director at the BlockchainIST Center, a research and development center for blockchain technology. The regulations may also include measures to improve digital security, capital adequacy requirements, custody services, and proof of reserves.
Turkey is currently ranked fourth globally in terms of raw crypto transaction volumes, behind the United States, India, and the United Kingdom. The country’s interest in crypto assets is reflected in its ranking of 12th on the crypto adoption index. This interest is driven by a desire to counteract currency devaluation and the younger generation’s enthusiasm for new technology.
The move to regulate the crypto market is aimed at addressing concerns raised by FATF. In a July report, FATF highlighted Turkey’s need to properly regulate and identify Virtual Asset Service Providers and their shareholders, as well as the lack of licensing and registration requirements in the country. By implementing the necessary regulations, Turkey hopes to comply with FATF’s recommendations and remove its grey-list status, which can impact investment ratings and reputation.
The boom in the Turkish crypto market can be attributed to years of double-digit inflation and a significant drop in the value of the lira against the dollar. Last year, inflation reached 85%, and the lira has depreciated by over 80% in the past five years. A survey by Binance Research revealed that a majority of Turkish investors entered the crypto market around two years ago, with 27% joining within the last year, indicating sustained interest in the sector.
The government plans to introduce regulation for crypto asset service providers and taxation of digital virtual assets in 2024. Establishing a reasonable taxation policy that does not deter investors is seen as crucial in strengthening trust in the sector and reinforcing Turkey’s potential in blockchain technology and crypto assets.
To address concerns of fraud and system breakdowns, authorities in Turkey banned the use of crypto assets for payments in 2021. Some smaller cryptocurrency trading platforms faced difficulties with user access and fund withdrawals, leading to numerous criminal complaints. The new regulations are expected to detail licensing criteria for platforms and taxation for users, according to Onur Altan Tan, a board member at Futurance Finance Tech & Fexobit cryptocurrency platform.
The regulations have been in development for over two years, including consultation meetings with cryptocurrency exchange firms. It is anticipated that the regulations will soon be ready for submission to the parliament.
Overall, the introduction of new regulations in Turkey’s crypto market aims to strike a balance between addressing financial crime concerns and fostering growth and investor trust in the sector.
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