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Information Note on The Pending Amendment Proposal in Banking Law

TARIK SAHIN MELIKE MERVE ISIK

Information Note on The Pending Amendment Proposal in Banking Law

To ensure harmonization and compliance with prevailing international standards and best practices across the financial sector; the draft legislative proposal dated 02.06.2020 and numbered 98 which will bring substantial amendments to the Banking Law Numbered 5411, has been submitted to the attention of the Turkish Grand National Assembly, adopted on 20.02.220 with the code No: 7222 and finally published at the Official Gazette of Turkey on 25.02.2020.

Among others, the new law aims to ensure that the products and services extended by the participation banking system are compatible with international examples, enhance reliance and stability within the financial sector and increase the deterrence effect of administrative fines to be imposed in case of any breach.

The most important changes set forth at the new law are strengthening of cash capital structures in the incorporation of factoring companies and increasing their institutional capacity, changing the law to meet daily needs of the banking sector and finally increasing the competitiveness within the sector.

The new law consists of measures to strengthen the prevention mechanism. Accordingly;

  • Administrative fines have been updated, and more severe and aggravated sanctions have been set forth as a measure.
  • Punishment for information abuse, market fraud and manipulation crimes has increased.
  • The measure of temporary suspension of the signatory powers of the bank members who jeopardize the banking system has been set out.
  • With the introduction of the amendments, Banks will be obliged to draft prevention plans, besides in the existence of a situation identified right after the audits which might lead to deterioration in financial structure, Banking Regulation and Supervision Agency will be entitled to take necessary precautions without awaiting the Bank to take the necessary actions.

The new law proposed to broaden the powers granted to the Capital Market Board and the Banking Regulation and Supervision Agency, respectively, to achieve the purpose of the amendment and increase the financial sector’s control. Accordingly;

  • In the event of the introduction of new financing tools. Banking Regulation and Supervision Agency has been authorized to determine whether these methods will be deemed loans.
  • The Banking Regulation and Supervision Agency have been granted the authority to request programs from banks in case of a risk.
  • To avoid irreparable damages, it is set out that access to the websites to carry out unauthorized activities can be blocked. In this regard, the Banking Regulation and Supervision Agency have been equipped with the authority to apply to the prosecutor’s office and to file a criminal complaint.
  • The Central Bank of the Republic of Turkey has been authorized to determine all banks fees, expenses and commissions.
  • The Capital Markets Board has been given the authority to set different procedures depending on the nature of publicly traded corporations.
  • The Central Bank of the Republic of Turkey has been authorized to determine the period to disclose the maximum contractual interest rate and default interest.

Apart from the issues above, the new law also aims to explain Banking Law No. 5411 crystal clear without leaving room for different interpretations of the provisions. It also aims to resolve the potential conflict with local and international laws. In this regard, the new concepts and arrangements expected to be incorporated into Banking Law are as follows;

  • The concept of “Security Trustee,” also called “Trust,” has been incorporated into Turkish Law. To fulfil the obligations arising out of capital market instruments in due course, the assets identified by the Capital Market Board might be used as security. Accordingly, these assets might be assigned to a “Security Trustee,” like an investment company, and an in rem right over these assets will be established. The new law regulates the obligations of the Security Trustee, Security Management Contract, and measures that could be taken in case of any violation of the pertinent contract.
  • “Housing financing funds” and “wealth financing funds” which lack legal personality will be treated as legal persons in registration, cancellation and similar transactions at all registries, including land registry and trade registry.
  • “Investment Funds,” which do not have any legal personality, will also be treated as legal persons when it comes to registration, amendment, cancellation and similar transactions at all registries, including land registry and trade registry.
  • Turkey Assets Fund Management Joint Stock Company, Turkey Wealth Funds or transactions concluded with funds belonging to them, debt instruments issued by them or bonds, and similar debt instruments payment for which they have guaranteed will not be subject to any credit limitations.
  • Areas, where development and investment banks can provide funds, have been expanded.
  • In line with the Law on Protection of Personal Data No. 6698, the character of the trade secret and the conditions for the transfer of personal data have been regulated.
  • Manipulation and misleading transactions were counted in financial markets, and it was regulated that administrative fines would be in question in these cases.
  • Flexibility has been provided to the equity crowdfunding method.
  • Investment firms have been granted the authorization to operate in the area of project financing, extend credit for the same and set up project finance funds.
  • In the establishment of factoring companies, the capital amount to be paid in cash has been increased from twenty million TRY to fifty million TRY.

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