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The needs and habits of people always fuel and shape technological advancement. The increased use of technologies that interconnect users and grant them an electronic presence has been the trend for a long while in every aspect of life, both for consumers and companies. On top of this trend, the use of such technologies became a necessity during the COVID-19 pandemic both because of quarantines and the necessity caused by the pandemic to reduce physical contact and increase physical barriers. It is constantly becoming more commonplace to transform conventionally physical concepts to their in some ways elevated counterparts in the digital world, social media allowing people to connect in a network beyond the restrictions of physical connections, blockchain technologies transforming different areas from finance to art, remote work technologies allowing businesses to continue even at times physical connection is kept at a minimum. One of such technologies is the electronic money and payment systems that allow users to hold electronic funds and make transactions electronically. In this article, we will explain the general legislative landscape of electronic money and Electronic Money Institutions in Turkish Law.
Electronic Money Institutions are legislated by the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions no. 6493 (“Law”) and its secondary legislation. The Law and the subsequent Regulation on Payment Services and Electronic Money Issuance, and Payment Institutions and Electronic Money Institutions (“Regulation”) that regulates the activities, standards, and restrictions along with supervision and reporting procedures for and regarding the Electronic Money Institutions, their shareholders, and their management constitute the legal foundation for Electronic Money Institutions in Turkey.
The law defines electronic money as “Monetary value issued in exchange for the funds accepted by the electronic money issuer, stored electronically, used to perform the payment transactions defined in this Law, and accepted as a means of payment by real and legal persons other than the electronic money issuer” and Electronic Money Institutions as “Legal person who is authorized to issue electronic money within the scope of this Law”. Within this context, electronic money can only by authorized Electronic Money Institutions in exchange for funds – funds can be fiat money or electronic money – however such electronic currency is only considered electronic money if it is accepted as a means of payment by third party real or legal persons. Pre-paid instruments that are limited to be used only within the issuer’s network, only for a predetermined set of services, or only within a certain service network through an agreement are not considered as electronic money and are not within the scope of the Law. However Central Bank of Republic of Turkey (“CBRT”) can decide that such instruments shall be held within the scope of the Law if the total value of transactions performed with the instrument and its range of influence reach the levels determined by CBRT.
Electronic Money Institutions can operate with the permission of CBRT and through banks defined with Banking Law no. 5411 (“Banking Law”). They are also required to have certain qualifications such as:
· Electronic Money Institutions shall be established as a joint-stock company,
· Electronic Money Institution shareholders who hold 10% or more of the shares and controlling shareholders shall have the qualifications established with the Banking Law for founders of banks,
· Electronic Money Institutions’ share certificates shall be issued in exchange for cash and all shall be registered share certificates,
· Electronic Money Institutions’ capital, fully paid in cash and free of all collusion, shall be at least five million Turkish Liras,
· Electronic Money Institutions shall have the management, sufficient personnel, and technical equipment capable of performing their activities within the scope of the Law, and shall establish units for complaints and objections,
· Electronic Money Institutions shall take the necessary measures to ensure the continuity of its activities within the scope of the Law and the security and confidentiality of funds and information of electronic money users,
· Electronic Money Institutions shall have a transparent and open shareholder structure and organizational chart that will not hinder CBRT inspection.
Electronic Money Institutions are obligated to transfer the funds they receive from their users in exchange for issuing electronic money to an account in a bank defined in Banking Law. Electronic money can only be issued for the amount of the funds received and shall be issued without delay upon receiving these funds. Pursuant to the Law and the Regulation, Electronic Money Institutions cannot;
(i) give credit to users,
(ii) provide users interest or other benefits dependent on the amount of electronic money held or the period of time the electronic money is held
(iii) accept deposit or participation funds,
(iv) use a bank’s name, or create the impression they are working in a capacity similar to a bank or acting on behalf of a bank in any of their documents, advertisements, or public announcements.
As they can turn funds into electronic money, users can also receive funds back from Electronic Money Institutions in return of electronic money. Pursuant to the Regulations, the situations where an Electronic Money Institution can request fees for such transactions are limited for user who are consumers, however in cases where the user is not a consumer transaction terms can freely be agreed upon between the parties.
Finally, the application for operations and supervision processes for Electronic Money Institutions are performed by CBRT. While previously these processes were within the responsibilities of Banking Regulation and Supervision Authority (“BRSA”), following the amendment to the Law dated November 22, 2019 all of the authorities and responsibilities of BRSA within the scope of the Law were transferred to CBRT effective as of January 1, 2020. Electronic Money Institutions are required to apply to CBRT to operate. CRBT is also responsible for supervising and performing necessary audits on Electronic Money Institutions and their branches. In addition, pursuant to the Law and the Regulation Electronic Money Institutions are obligated to report certain records, developments and changes in the company such as outsourced activities, changes in trade name, documentation regarding the members of the board of directors and the general manager of the company, independent audit reports etc. The list of authorized Electronic Money Institutions is published in the CBRT’s official website.
Kortan Berat Gödekoğlu
