What is FinTech Law?
Over recent years, the financial services industry has been experiencing dramatic changes as a result of technological development and digital transformation. The changes can be seen obviously on how the financial services are offered by FinTech companies, customer behaviours in using the financial services, as well as customer expectations and preferences. FinTech start-ups leave traditional players -mainly banks- no chance but to invest in disruptive technologies as otherwise losing business to more technologically advanced competitors is around the corner. It is widely accepted that digital transformation and technological development have been redefining the financial services industry which led many existing laws and regulations being amended and new ones being introduced all around the globe.
With the rise and success of digital banking, including application-based providers, it is not difficult to predict that the FinTech industry will grow exponentially over the coming years. This trend has catered the area of FinTech Law to be acknowledged as a unique area of law in the legal sector.
Financial technology (FinTech) refers to new technology that seeks to improve and automate the provision and use of financial services whereas FinTech Law refers to the area of law mainly dealing with regulatory compliance. Fintech Law involves compliance specific to FinTech Laws and regulations, privacy and personal data protection laws, anti-money laundering (AML) regulations, prohibition of terror financing, tax regulations, corporate governance, intellectual property and contract engineering. Therefore; a FinTech Lawyers must have a deep understanding of the applicable regulations affecting the industry and help providers of financial services to be compliant with many different areas of law.
For law firms working and specialised in the field of FinTech Law, it is quite important to bring together expertise of financial services, alongside expertise in data protection law, contract law, intellectual property law, corporate law, and the range of other areas where legal questions arise, including but not limited to tax, employment, commercial and disputes. FinTech Law also involves activities including cryptocurrencies, initial coin offerings, online lending, payments, wealth management and account aggregation.
The revolution in financial services sector -which was led by the developments in artificial intelligence, blockchain technology, open banking and other technologies- has transformed how traditional financial services are provided to customers. As FinTech companies provide innovative solutions they are at risk of falling foul of outdated laws that could jeopardise the ongoing provision of services and growth. Particularly, for this reason, FinTech Laws and regulations around the globe must be developed, improved and adapted to answer the needs of the new order in the financial services industry.
Which laws and regulations must FinTechs be aware of in Turkey?
The main piece of legislation governing both payment services and e-money sector in Turkey is “Law on Payments and Securities Settlement Systems, Payment Services and Electronic Money Institutions” (Law No.6493) which was enacted in 2013. The Law No 6493 and related secondary legislation are mainly based on the “Payment Services Directive” (2007/64/EC, 13.11.2007) (PSD1) and “E-Money Directive” (2009/110/EC, 09.02.2009), and “The Electronic Money Regulations 2011 No.99” of England until very recently. A new amendment for Law No 6493 was published in the Official Gazette on November 22th of 2019 and it has become effective by 1st January 2020. With the amendment, the previous regulator's (Banking Regulation and Supervision Agency - www.bddk.org.tr) regulation and supervision responsibilities in the payments services and e-money sectors were given to the Central Bank of Republic of Turkey ('CBRT'- www.tcmb.org.tr). Therefore, the CBRT has become responsible for the regulation and supervision of the payment services/issuance of e-money as from January 1st, 2020. This recent amendment mainly aims to aligned with the 2015/2366/EC (PSD2). It must be noted that Turkish regulation in payment services and e-money fields seem largely compatible with the EU Directives and Regulations.
The current secondary legislations including the Regulation and Communique introduced in relation to Law No 6493 are expected to be amended by CBRT within 2020.
How to set up a FinTech company in Turkey?
FinTechs which intends to provide payment services & issuance of e-money in Turkey directly to the end users are required to obtain an operating license from Central Bank of Turkey. It should be noted that there are several alternative contractual models in which FinTechs from abroad can enter with Turkish licensed payment service providers and e-money institutions and provide its services to their payment service users.
According to Article 14 and 18 of Law No 6493;
- Such FinTech which intends to provide payment services & issuance of e-money shall be established as a joint stock company,
- The shareholding structure must be transparent
- those having ten percent or more shares in a payment institution’s capital and having control over the payment institution shall meet the bank founder’s eligibility criteria as set forth in the Law No. 5411,
- its shares shall be issued against cash and be fully registered in its name,
- its paid-up capital, consisting of cash and free of all kinds of fictitious transactions, should not be less than TRY 2M for payment institution and TRY 5M for e-money institution.
- it is required to have sound and prudent management; adequate personnel and technical equipment to perform the payment services business and establish necessary units for complaints and objections,
- it should take necessary measures for the continuity of the activities to be conducted within the scope of this Law No 6493, and for the security and confidentiality of the payment service user’s funds and information,
Therefore; any FinTech which intends to provide payment services & issuance of e-money in Turkey must have a local legal presence. Such FinTech company must be registered in Turkey as a Joint Stock Company and must satisfy several requirements including but not limited to the minimum capital, transparent shareholding structure, adequate personnel, IT infrastructure, required procedures so and so forth.
Furthermore; it should also be noted that there is no limitation for foreigners to own 100% of any licensed FinTech company in Turkey which will be providing payment services & issuance of e-money under the regulation and supervision of Turkish Central Bank.
- How easy to get an operating license for a FinTech in Turkey?
As long as the required documents, infrastructure, procedures and policies are in place and the quality of the application is of a high standard, it is easy to get an operating license from the Central Bank of Turkey. The legal period is determined as 6 months from the application.
Some difficulties may arise regarding shareholding structure of foreign companies or the IT structures.
Turkish regulations require (i) a detailed shareholding structure of an applicant FinTech until reaching up to the real persons and; (ii) the submission of the required documents as listed in the Regulation for the shareholders which are holding 10% or more of the shares directly or indirectly at FinTech. Therefore; applicant companies must be aware of this requirement and be prepared to submit several information and documents regarding their shareholders to the Central Bank of Turkey.
Additionally, IT structure in general and data centres of an applicant FinTech in particular must be in compliance with the Turkish laws and regulations. In the event that a FinTech does not comply with the requirement of IT structure and data centres, it will not be possible to obtain an authorisation from the Turkish Central Bank to provide payment services or issuance of e-money. Licensed FinTechs must kept all of their data arising from their services inside Turkey. A cloud system can be used as a solution, but it must also be kept inside Turkey. This appears as one of the most common reason for several global companies who were previously operating in Turkey to stop their operation and for others facing problems in adapting their IT structure to Turkish regulations.