Legislation Round-Up - Restructuring Regulation, Suspicious Financial Transaction Guidelines And Equity Crowdfunding Communiqué

Introduction

This short note intends to provide a round-up of key changes in financial legislation in recent months.

The so-called "Restructuring Regulation" has been amended for consistency with the recently enacted restructuring provisions of the Banking Law. The amending regulation, titled the Regulation Amending the Regulation on the Restructuring of Debt Owed to the Financial Sector was published in the Official Gazette dated 12 September 2019 and numbered 30886.

The Equity Based Crowdfunding Communiqué, which markets were eagerly anticipating, was published on 3 October 2019

Finally, the Financial Crimes Investigation Board updated its financial transaction guidelines published for banks and the Turkish Postal Service.

The Restructuring Regulation

The Regulation aims to harmonise the previously issued Regulation on the Restructuring of Debt Owed to the Financial Sector with the newly introduced Article 17 of the Blanket Law which introduced a similar financial restructuring scheme, supplemented through additional tax exemptions.

The primary changes introduced by the amending regulation are as follows:

• the definition of Creditors set out in the Regulation has been expanded – offshore banks and financial institutions lending directly to the debtors, multinational banks and institutions directly investing in Turkey, companies incorporated by the creditors for the collection of such debts and investment funds established pursuant to the Capital Markets Law numbered 6362 are now considered to be "Creditors";
• investment firms incorporated pursuant to the Capital Markets Law numbered 6362 are now defined as "Debtors". Furthermore, the definition of Debtor has been updated to provide an editorial clarification by providing Debtors only mean companies incorporated in Turkey;
• the rules and procedures pertaining to participation of third party creditor in disputes and the termination of contracts will also need be regulated by the Framework Agreement; and

The Equity Crowdfunding Communiqué

In 2017, the Blanket Law numbered 7061 introduced equity crowdfunding into the Capital Markets Law, as an alternative way to raise capital. The same law also enabled the Turkish Capital Markets Board to issue detailed secondary legislation, namely the Communiqué.

The Communiqué faithful to the previously published draft which has been in public consultation, , provides for the rules and principles for equity-based crowdfunding platforms and individual investment limits.

Some of the highlights from the Communiqué are as follows:

• Crowdfunding platforms must be approved and included into the list maintained by the of Capital Markets Board;
• Crowdfunding platforms must be incorporated as joint stock companies, with minimum paid-in regulatory share capital of TL-1,000,000.00.
• Crowdfunding companies' scope of activity shall be limited to the operations of the crowdfunding platform. However, these companies can still provide consultancy services related to crowdfunding to venture capital firms and investors.
• Founders and subsequent shareholders of crowdfunding platforms are required to meet certain criteria, common in most financial industries, as provided in the Communique.
• Certain control, management, accounting and IT requirements need to be met.;
• Individual investors (save qualified investors) can only invest TL 20,000, or an amount corresponding to 10 per cent of their net revenue in a given calendar year. However, this amount cannot exceed TL 100,000;
• The collected funds cannot be used for the direct or indirect purchase or financing of immovable property or projects over rights arising from immovable property.
• The platforms cannot service projects located outside of Turkey.
• Unsolicited investments in foreign crowdfunding platforms are not within the scope of the Communiqué and as to this, readers should take note of the Capital Markets Board's solicitation guidelines which set out prescriptive rules for offshore and cross-border capital markets activities.

The Guidelines

The Guidelines provide guidance on the reporting obligations of banks for "suspicious fund transfers". According to their updated, "Illegal Securing of Funds", a class of financial crime, has been categorised as "Financing of Terrorism".

Therefore, the securing of funds to be used in terrorist activities through legal entities such as associations are now included within the scope of this grouping. In addition, corruption, unlicensed payment and electronic money services, not declaring the actions on behalf of a third party, cigarette, alcohol and tobacco smuggling and Ponzi schemes have also been listed as common types of financial crimes.

Conclusion

The amendments to the Restructuring Regulation aims to address the need for harmonisation after the enactment of the restructuring law earlier this year.

The Equity Crowdfunding Communiqué, which was being eagerly anticipated in the market, now paints the regulatory landscape for platforms and investors to become operational and could be a useful source of capital for start-ups, particularly in software and financial technology.

Finally, the newly updated financial transaction guidelines now expressly consider a wider range of activities as "suspicious" and should serve to produce more robust monitoring of financial crimes going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.