Changes in the Turkish Financial Market with the Newly Introduced Omnibus Law
The Law Amending the Banking Law and Certain Laws has been published in the Official Gazette dated 25 February 2020 and numbered 31050 (the “Amending Law”). The Amending Law, being in the nature of a narrow-scoped blanket law, introduced significant amendments to a number of legislation regulating the Turkish financial market. This note intends to provide a round-up of key changes introduced with the Amending Law.
Changes in the Banking Law
a. Expansion of the Scope of “Loans”
The scope of transactions to be classified as “loans” has been expanded. The Amending Law authorises the Turkish Banking Regulatory and Supervision Agency (the “BRSA”) to introduce new financing methods for development and investment banks as well as participation banks.
b. Expansion of the Field of Activities of Development and Investment Banks
With the Amending Law, development and investment banks are now entitled to operate based on interest-free methods alongside participation banks subject to the principles and procedures to be published by the BRSA. Further, partnerships where participation banks and development and investment banks have invested in through interest-free financings are exempt from being considered as a risk group of the relevant banks.
c. Amendments in relation to Risk Groups
The Amending Law also expands the scope of risk groups by including the spouses and children of individuals already listed in a risk group of the relevant bank.
Further, an individual risk group has been introduced in relation to banks whose majority shares are severally or jointly owned by the Treasury of the Republic of Turkey, the Turkish Privatisation Administration, the Turkey Wealth Fund (“TWF”), the Turkey Wealth Fund Management Company (“TWF Management”) or any public administrations being a part of the centralised administration of the Republic of Turkey.
d. Exemption of the TWF from Credit Restrictions
Transactions made with bonds, other securities and similar debt instruments issued or guaranteed by the TWF and the TWF Management are within the scope of transactions which are not subject to credit restrictions.
e. Banking Secrets
The Amending Law fortifies the protection of client information. Banks are now banned from sharing client information with domestic and foreign individuals or legal entities without the client’s express request or instruction, even if an explicit consent is obtained pursuant to the Law on the Protection of Personal Data.
Further, the BRSA is authorised to introduce additional restrictions on the transfer of client information abroad.
f. Delegation of Authority to Determine Banking Fees and Commissions
The Amending Law delegates the authority of the President of the Republic of Turkey on the determination of fees and commissions under any name received by banks for any banking activity to the Central Bank of the Republic of Turkey (the “CBRT”).
g. Intensification of Monitoring
The Amending Law shows that the intention is to strengthen control mechanics over banks.
To this end, the Amending Law introduces a “prevention plan” details of which are to be determined by the BRSA. The prevention plan shall serve as a predetermination of measures to be taken by banks in case of the occurrence of any potential issues in their financial structures. Further, the BRSA is also authorised to request from the relevant bank to take measures identified in their prevention plan even if there is only a possibility of the occurrence of any potential issue in relation to the relevant bank’s financial structure.
The Amending Law also introduces a separate paragraph listing transaction to be deemed as “manipulative and fraudulent transactions”. In this respect, (i) making any transaction or practice aiming to make an artificial supply, demand and price including exchange rates; (ii) spreading incorrect and misleading information by various means, including online platforms; (iii) providing incorrect and misleading guidance for savers; and (iv) performing any similar transactions for these stated purposes through banking activities are to be classified as “manipulative and fraudulent transactions” which are subject to administrative fines. According to the Amending Law, the BRSA will soon publish a list of transactions to be within the scope of such manipulative and fraudulent transactions.
Changes in relation to Factoring Companies
With the Amending Law, the minimum capital amount required for the establishment of a factoring company increased from TRY 20 million to TRY 50 million. Further, the existing factoring companies need to increase their capital amount in order to comply with such amendment within one year following the effective date of the Amending Law. Otherwise, their activity permits will be cancelled by the BRSA. The BRSA has the authority to extend this deadline up to two years.
Changes in the Capital Market Law
The Amending Law also brought some amendments to the Capital Market Law with a view to introducing certain universal concepts widely used in the international market and addressing the need for the modernisation of Turkish capital market law regime.
a. Introduction of the “Security Agent” Concept
As known, civil law jurisdictions usually do not recognise the concept of “trust”. Turkish law also did not recognise such a concept as there was no possibility to peel proprietary rights over a Turkish asset into layers distributing one (beneficial ownership) to a group of lenders who may change from time to time and the other (legal ownership) to the security agent who remains the proprietor on the face of the security.
This position of Turkish law appears to have slightly been shifted as such common law-based universal concept has been incorporated into the Turkish capital market law. It is worth noting that the scope of application for this newly concept is limited with securing capital market instruments for the time being. Practice will show whether such concept might be extended to other areas of Turkish law in future.
b. Project Financing
The Amending Law also defines the concept of “project financing” and introduces project financing funds and project-backed securities into the Turkish capital market law.
c. Amendments to Significant Transactions and Exit Right
Significant transactions, are, in principle, listed on an exhaustive basis (technically termed the “numerus clausus principle”), meaning transactions not falling within the list are not deemed as a significant transaction which allows shareholders to leave the relevant company with the exit price.
The Amending Law introduces a catch-up provision by including “any similar material transactions” to such exhaustive list.
This catch-all type addition is in clear conflict with the exhaustive nature originally intended for the concept of significant transactions. It would be beneficial here to note that, beyond a technical legal concern, it might be difficult for commercial parties and legal practitioners to get comfortable around whether a transaction constitutes a “similar material transaction” without having clear guidance of such a catch-up provision. Boundaries of such concept will need to be drawn by court precedents to establish a unified approach.
Furthermore, the exit price will no longer be calculated on the basis of the weighted average in the exchange within the preceding 30 days. Instead, the exit price will use a fair value to be calculated according to the principles and procedures to be determined by the Capital Markets Board (“CMB“). Lastly, the CMB, if deemed necessary, has the authority to constitute a right of refusal for other shareholders in relation to the shares of the exiting shareholder.
Overall, the Amending Law has been enacted with a view to harmonise the Turkish legal framework with international financial standards and provide more safety and stability for the Turkish market financial market through fines and controls.