Legal Newsletter 3/2018

Read below the latest legal developments in Turkey. This latest roundup provides insight on the latest amended and repealed laws and regulations affecting different sectors.

To discuss how these developments affect your business interests please contact Fethi Pekin, Managing Partner. Email: fpekin@pekin-pekin.com

 

BANKING & FINANCE

Q3/2018 Further Amendments on the Capital Movements Circular

  • In addition to changes which have been made to the Capital Movements Circular dated May 2, 2018 and issued by the Central Bank of the Republic of Turkey (the “Capital Movements Circular”) in the months of May and June 2018, the Ministry of Treasury and Finance has issued three letters, respectively on September 7, 2018, September 18, 2018 and September 26, 2018, so as to amend the Capital Movements Circular.According to the recent amendments, in case Turkish bank acting as intermediary with respect to disbursement of a loan obtained by a Turkish company from abroad is different from Turkish bank acting as intermediary with respect to repayment of the respective loan, the latter shall notify in written to the first of these on the same date as its intermediation with respect to repayment. Also, the Turkish bank acting as intermediary with respect to disbursement is required to notify of actual credit risk balance of the relevant borrower to the Risk Center of the Banks Association of Turkey (Türkiye Bankalar Birliği Risk Merkezi) within the business day following due receipt of such notification.It should be further noted that the said amendments have expanded Turkish banks and financial institutions’ ability to issue letters of credit. As such, Turkish banks and financial institutions may extend letters of credit, which are transferable to abroad and divisible, in Turkish Lira corresponding to amount determined by the relevant parties; payments to be made by the issuing bank to the transferee bank can be made in foreign currency; and deficiency payments to be made by the transferee bank to beneficiary in Turkey can also be made in Turkish Lira corresponding to the amount in a foreign currency agreed on by the parties.Moreover, a new exemption to foreign currency loan restrictions under the Capital Movements Circular has been introduced by the abovementioned amendments. Hence, the Technology Development Foundation of Turkey (Türkiye Teknoloji Geliştirme Vakfı) has become authorized to extend foreign currency denominated loans from the Ozone Projects Fund to certain Turkish residents. Noting that Turkish residents shall meet conditions set forth under the relevant grant agreements in efforts to obtain such loans from the Technology Development Foundation of Turkey, extension of the said loans shall also be subject to the provisions of such agreements.On a final note, any upcoming changes to the Capital Movements Circular will not be shocking for Turkish financial markets, since it has already seen several piecemeal amendments as of its respective entry into force.

Q3/2018 Re-increase of the Maximum Interest Rates to be applied to Credit Card Transactions

  • After increase in maximum interest rates applicable to credit card transactions which has taken effect as of July 1, 2018, the Central Bank of the Republic of Turkey has introduced another communiqué amending the Communiqué on Maximum Interest Rates to be applied to Credit Card Transactions (Communiqué No. 2016/8) (published in the Official Gazette dated November 12, 2016 and numbered 29886) which has been published in the Official Gazette dated September 20, 2018 and numbered 30541.As per the recent amendments, monthly maximum rate of contractual interests to apply to Turkish Lira transactions has been increased from 2.02% to 2.25%, whereas monthly maximum rate of default interests to apply to Turkish Lira transactions has been increased from 2.52% to 2.75%. When it comes to foreign exchange transactions, it should be noted that monthly maximum rate of contractual interests has been increased from 1.62% to 1.80, and monthly maximum rate of default interests has been increased from 2.12% to 2.30%. Also note that the maximum rates listed above shall take effect as of October 1, 2018.

Q3/2018 Slight Revisions on the Monitoring Regulation

  • With the objective to monitor the foreign exchange positions of Turkish resident individuals and legal entities, the Central Bank of the Republic of Turkey (the “CBRT”) has enacted the Regulation on Procedures and Principles regarding the Monitoring of Transactions Affecting Foreign Exchange Position (published in the Official Gazette dated February 17, 2018 and numbered 30335) (the “Monitoring Regulation”). Since the Monitoring Regulation’s entry into force, the CBRT has introduced amendments thereto for the first time, as published in the Official Gazette on September 19, 2018 with immediate effect.The scope of “declarant residents” that are liable to notify the CBRT of their foreign exchange positions has been limited with the recent amendments. As such, public legal entities other than (i) metropolitan municipalities, (ii) municipalities, (iii) enterprises and administrations affiliated to such municipalities, (iv) economic enterprises, more than half share capital of which is solely or jointly held by such municipalities, (v) public economic enterprises and (vi) higher education institutions will no longer be considered as declarant residents under the Monitoring Regulation. Furthermore, metropolitan municipalities, municipalities, enterprises and administration affiliated to such municipalities and higher education institutions shall be exempt from provisions of the Monitoring Regulation regarding independent audit. Time period for notification of foreign exchange positions following the interim accounting periods ending on March 31st, June 30th and September 30th has been extended from one month to two months. Companies that implement special accounting periods shall complete their notifications in relation to interim accounting periods and annual accounting period, respectively within two months following each quarter period and within three months following the end of annual accounting period.In order to be an active user of the Systemic Risk Data Monitoring System (the “System”), it is no longer mandatory to have a secure electronic signature; hence, security steps of the System shall be followed to subscribe thereto without a secure electronic signature. Also, pursuant to the recent amendments, the CBRT has become entitled to make changes to the relevant time periods, support service institution, users, notification procedure, data form items subject to auditing, explanation form on the System (if need be); and establish necessary practices with respect to insolvent companies and companies audited by the Savings Deposit Insurance Fund.

Q3/2018 Restructuring of the Debts to Financial Sector

  • In the recent times, we have witnessed significant developments concerning restructuring of debts owed to Turkish banks and financial institutions. As such, introduction of the Regulation on Restructuring of Debts Owed to Financial Sector (published in the Official Gazette dated August 15, 2018 and numbered 30510) (the “Restructuring Regulation”) by the Banking Regulation and Supervision Agency (the “BRSA”) represented a first step within this context. Enactment of the Restructuring Regulation has been followed by a draft law on restructuring of debts owed to financial sector (the “Draft Law on Restructuring”) that was prepared by the BRSA and shared by the Banks Association of Turkey (Türkiye Bankalar Birliği) with its members. Lastly, Turkish banks and other financial institutions have executed the financial restructuring framework agreement dated September 11, 2018 (the “Framework Agreement”) and the Framework Agreement has entered into force with approval of the Banking Regulation and Supervision Board on September 19, 2018.For further elaborations on legislative developments regarding financial restructuring, you may see Legal Alert on the Restructuring Regulation, Legal Alert on the Draft Law on Restructuring and Legal Alert on the Framework Agreement that have been prepared by our Firm.

Q3/2018 Revision on the Qualification of Loans to make the Financial Restructuring more Efficient

  • Simultaneously with enactment of the Regulation on Restructuring of Debts Owed to Financial Sector, the Banking Regulation and Supervision Agency (the “BRSA”) has introduced certain amendments to the Regulation on Procedures and Principles in relation to Qualification of Loans and Provisions to be Set Aside Therefor (published in the Official Gazette dated June 22, 2016 and numbered 29750) (the “Loan Regulation”), as published in the Official Gazette dated August 15, 2018 and numbered 30510 with immediate effect.Accordingly, any restructured loans shall be qualified as and monitored under Group II provided that such loans are not deemed as non-performing loans that shall also be monitored under Group II, upon being subjected to restructuring. Additionally, Turkish banks must no longer consider loans, repayment of which shall be made within a time period longer than 30 days, as structured loans, or qualify the same as Group II. Pursuant to the latest amendments, Turkish banks implementing Turkey Financial Report Standard 9 will be able to requalify loans, which have been restructured and monitored under Group II for a period of three months, subject to certain conditions set out under Article 7(6) of the Loan Regulation, as Group I.It is also worth noting that revisions to loan agreements, the borrower party of which are not in financial difficulties, and refinancing of the relevant loans (in part or in full) shall not be considered as restructuring; and the said loans can be monitored under Group I.

Q3/2018 A Series of Amendments to the Cards Regulation

  • The Banking Regulation and Supervision Agency (the “BRSA”) has enacted two regulations amending the Regulation on Bank Cards and Credit Cards (published in the Official Gazette dated March 3, 2007 and numbered 26458) (the “Cards Regulation”), as published in the Official Gazette on July 6, 2018 and August 15, 2018, both with immediate effect.Pursuant to the above-said amendments, card holders have become entitled to request for decrease in their card limit and total card limit, in addition to withdrawal of their cards and termination of the related agreements. In parallel with withdrawal and termination requests, card issuer institutions are required to decrease card limit/total card limit within seven days as of the respective request for decrease. Prior to implementing decreases in card limits/total card limits, card issuer institutions shall receive express declaration of card holders stating that their requests pertain to the respective decrease in card limit/total card limit.Finally, limit of installment periods for purchase of goods and services with corporate credit cards and cash withdrawals from corporate credit cards has been reduced from 12 months to 9 months.

Q3/2018 Facilitation of the Acquisition of Shares in certain Companies for Banks by the BRSA

  • In order to keep Turkish banks unaffected from the recent developments in the financial markets, the Banking Regulation and Supervision Agency (the “BRSA”) has taken certain measures without loss of time. In parallel with such purpose, the BRSA joined the Capital Markets Board (the “CMB”) by expanding the BRSA approval exemptions for acquisition of shares in companies and recently enacted amendments (the “Amendments”) to the Regulation on Operation of Banks Subject to Permission and Indirect Shareholding (published in the Official Gazette November 1, 2006 and numbered 26333) (the “Permission Regulation”), as published in the Official Gazette dated August 14, 2018 and numbered 30509.The CMB had introduced exemptions to the tender offer obligations for acquisition of public company shares by banks in June 2018.What did the Amendments bring?As already known, Turkish banks are able to incorporate companies and take part in companies that have already been incorporated, provided that permission from the Banking Regulation and Supervision Board (the “BRSB”) is obtained. That being said, Turkish banks are not required to obtain any permission to (i) conduct activities of share certificate investments for trading purposes; (ii) acquire shares for the collection of receivables; and (iii) participate in the share capital increases of their subsidiaries.Furthermore, the Amendments have expanded the scope of such exception to the banks’ transactions subject to permission given by the BRSB. Accordingly, Turkish banks are able to, without any permission, acquire shares in (i) companies, that have been incorporated pursuant to any law or presidential decree, and services of which can be benefitted from only by way of holding shares in such company; and (ii) companies that have been incorporated by more than one bank or financial institution in accordance with the risk management practices, unless;
    • such acquisitions result in sole or joint control of the banks over the relevant target companies;
    • the aggregate amount of shares held by the banks in such target companies exceeds three per thousand (0.3%) of the banks’ respective own funds (i.e. equity capital); and
    • the acquisitions are notified to the BRSA at the latest 30 days prior thereto, by way of a report, wherein the scope of activities carried out by the target companies is explained in detail.
    On a final note, the aforesaid exception shall have a retroactive effect on the acquisition of any shares in companies by banks as per the provisional article under the Permission Regulation, that have been incorporated pursuant to any law or presidential decree, and whose services can be employed only by its respective shareholders. Conclusion In response to risks related to default of Turkish companies in repayments, the BRSA has enabled Turkish banks to acquire shares in excepted companies as mentioned above.

Q3/2018 Revision on the Mandatory Reserve Ratios

  • As a preventive measure against recessionary trend in the Turkish economy, the Central Bank of the Republic of Turkey (the “CBRT”) has amended the mandatory reserve ratios to be held by Turkish banks and financing companies. Accordingly, the Communiqué on Required Reserves (No. 2013/15) (published in the Official Gazette dated December 25, 2013 and numbered 28862) has been amended with an amending communiqué published in the Official Gazette dated August 14, 2018 and numbered 30509 (the “Amending Communiqué”).What’s New?With the aim of boosting efficient operation of the financial markets and procuring flexibility in the liquidity management of Turkish banks, the following amendments have been introduced by the CBRT:
    • Ratio of Turkish Lira mandatory reserves has been decreased by 250 basis points for each maturity segment.
    • Ratios of mandatory reserves for other liabilities (i.e. non-core FX liabilities) in foreign currency have been decreased by 400 basis points. As such, the relevant mandatory reserve ratios, which have been 24%, 19% and 14%, shall be revised as 20%, 15% and 10%, respectively for the liabilities with a maturity up to 1 year (inclusive), with a maturity up to 2 years (inclusive) and with a maturity up to 3 years (inclusive).
    • Maximum average facility opportunity for foreign currency liabilities has been increased to 8%.
    • Within the scope of the Reserve Option Mechanism, in addition to mandatory reserves in USD, mandatory reserves in EUR may also be kept in return for Turkish Lira liabilities.
    It should be further noted that the Amending Regulation as well as the new mandatory reserve ratios shall be deemed effective as of July 27, 2018, though the Amending Regulation shall enter into force as of its publication in the Official Gazette on August 14, 2018. Conclusion In consequence of the abovementioned changes in mandatory reserve ratios, the CBRT expects 10 billion Turkish Liras, 6 billion USD and liquidity in golden currency amounting to 3 billion USD to be injected into the financial system.

Q3/2018 Amendments to the Regulation of Rating Agencies

  • The Regulation on Principles regarding Authorization and Activities of Rating Agencies (published in the Official Gazette dated April 17, 2012 and numbered 28267) (the “Regulation of Rating Agencies”) has seen minor amendments, as published in the Official Gazette dated July 6, 2018 with immediate effect.As a result of the recent amendments, the provisions of the Regulation of Rating Agencies regarding rating agencies’ independence shall not be applicable to legal entity shareholders that have directly or indirectly 10%, or less than 10% of the shares in the rating agencies. In case any legal entity owns indirectly or directly 10% of the shares in a rating agency and the relevant ownership constitutes an infringement of the provisions of the Regulation of Rating Agencies, the rating agency shall become compliant with such provisions within the time period to be granted by the Banking Regulation and Supervision Board (the “BRSB”). If the rating agency fails to (i) submit its compliance project to the BRSB or (ii) comply with the Regulation of Rating Agencies in due time, authorizations of the respective agency shall be repealed by the BRSB.On a side note, in order for a rating agency to be admitted to market, it must have been carrying out rating activities at least for the past three years; and five-year period is no longer required for such purpose. It should also be noted that the Banking Regulation and Supervision Agency is authorized to reduce such three-year period.
 

CORPORATE / M&A

Q3/2018 Energy & Natural Resources

  • On September 13, 2018, the Energy Market Regulation Authority issued a decision in order to set out procedures and principles regarding the activities of natural gas distribution companies in organized industrial zones. Accordingly, any kinds of services which fall under the scope of distribution activities defined in the relevant laws including the construction, operation, repair and maintenance of the distribution network, leakage detection, emergency action will be solely and indefinitely under the distribution company’s authority.

Q3/2018 Transportation, Logistics & Defence Sector

  • New licensing rules concerning those who obtained their terminal operating licences prior to March 3, 2018 for operation of airport terminals and those who will apply for licenses to operate sanitary enterprises in civil airports have been brought by the amendment issued by Directorate General of Civil Aviation. According to which those who obtained their terminal operating licences prior to March 3, 2018 for both terminals and airports shall also renew their operating licenses each year. Furthermore, those who obtained single terminal operating license to cover both domestic and international flight terminals prior to March 3, 2018 shall separately apply for renewal of the licenses for operation of the domestic and international flight terminals. Moreover, areas to be used by the sanitary enterprises in civil airports shall be made ready for providing services before application to the Directorate General of Civil Aviation for obtainment of the workplace opening and operating license. Due to construction or operational reasons, those who hold a terminal operating license are entitled to request to perform their activities in another terminal for which a terminal operating license has been issued within the same airport. The foregoing constitutes highlights of the amendments on the Regulation on Workplace Opening and Operating Licenses for Terminals and Sanitary Enterprises Located in Civil Airports published in the Official Gazette dated September 17, 2018 and numbered 30538.

Q3/2018 General Corporate

  • Certain obligations have been recently imposed on Turkish resident exporters relating to bringing export proceeds back to Turkey and converting such proceeds to Turkish Lira by virtue of a new Communiqué on Decree No. 32 Regarding Protection of the Value of Turkish Currency (in respect of export revenues). Pursuant to the Communiqué, exporters are obliged to bring their export proceeds into Turkey no later than 180 days as of the actual export transaction and transfer at least %80 of the proceeds to the intermediary bank. Furthermore, proceeds may be brought through limited payment methods such as payment against documents, acceptance letters of credit, acceptance documentary credit, acceptance against goods or cash payment. The Communiqué also regulates the procedures in case of advance payments in foreign currency, special export transactions, closure of export accounts, notifications to tax authorities. The provisions of the Communiqué are applicable for 6 months starting from the effective date of the Communiqué (i.e. September 4, 2018).The principles and procedures to be followed in case of technical bankruptcy stipulated under Article 376 of the Turkish Commercial Code are now regulated under the Communiqué on Principles and Procedures Regarding the Application of Article 376 of the Turkish Commercial Code (the “Communiqué”) published on September 15, 2018. The Communiqué outlines the remedial actions to be taken in three different scenarios with respect to insolvency of the companies where (i) the most recent annual balance sheet indicates that half of the sum of the capital and statutory reserves is depleted due to loss, (ii) most recent balance sheet shows that two-thirds (2/3) of the sum of the capital and statutory reserves are depleted due to loss; and (iii) the company being in a negative equity situation by losses depleting the entire sum of the share capital and statutory reserves of the company. Pursuant to Provisional Article 1 of the Communiqué, companies have the option to disregard foreign exchange losses due to foreign currency obligations not performed as of the date of calculation, until January 1, 2023.Certain changes have been made to distribution rules of advanced dividends with the Amendment Communiqué on the Advance Dividend Distribution published in the Official Gazette dated September 1, 2018 numbered 30522. For the purposes of calculation of the advance dividend following items shall be deducted from the interim profit: the previous fiscal years’ losses, tax, fund and financial considerations, reserve funds to be set aside as per the law, if any dividend share certificate owners and dividends reserved for non-shareholders determined with the articles of association. Advance dividends, unless otherwise specified in the articles of association, are now paid to shareholders in ratio of their capital share payments made to company instead of in ratio of their shares.The qualifications of the data controllers who are obliged to be registered and the due dates for registration are stipulated with the decision of the Personal Data Protection Board dated July 19, 2018 and numbered 2018/88 (published in the Official Gazette dated August 18, 2018 and numbered 30513). Accordingly, the qualifications are as follows;
    • Real person or legal entity data controllers who have more than fifty employees or whose annual total financial balance is over twenty five million Turkish Liras shall be registered to the Data Controllers’ Registry starting as of October 1, 2018 until September 30, 2019;
    • Real person or legal entity data controllers who are domiciled outside Turkey shall be registered to the Data Controllers’ Registry starting as of October 1, 2018 until September 30, 2019;
    • Real person or legal entity data controllers who have less than fifty employees and whose annual total financial balance is less than twenty five million Turkish Liras but whose main field of business is to process special category of personal data shall be registered to the Data Controllers’ Registry starting as of January 1, 2019 until March 31, 2020; and
    • Public institution and organization data controllers shall be registered to the Data Controllers’ Registry starting as of April 1, 2019 until June 30, 2020.
 

DISPUTE RESOLUTION

Q3/2018 All Domestic Arbitral Awards Rendered after the Effective Date of the Civil Procedure Law are Subject to Annulment Action

  • The Civil Procedure Law (Law No. 6100) (published in Official Gazette dated February 4, 2011 and numbered 27836) (the “New CPL”) entered into force on October 1, 2011. As per Article 439 of the New CPL, domestic arbitral awards can only be subject to annulment action. On the contrary, former Civil Procedure Law (Law No. 1086) (published in Official Gazettes dated June 2,3,4,1927 and numbered 622,623 and 624) (the “Former CPL”) stipulated that domestic arbitral awards could be subject to appellate procedure. This difference between the Former CPL and the New CPL resulted in a split among Chambers of Court of Cassation; while some chambers stated that an arbitration award of which arbitration agreement was executed before the effective date of New CPL would be subject to appeal even if the award was rendered after the abovementioned date, other chambers held the view contrarily to mentioned view and they ruled that the annulment action under the CPL shall be applicable to the domestic arbitral awards with disregarding the execution date of the arbitration agreement, if the award was given after the effective date of New CPL.The General Assembly of Civil Chambers for Jurisprudential Unification (the “Court”) abolished the split among the Court of Cassation Chambers with its decision numbered 2016/2 E. 2018/4 K. and dated April 9, 2018 (published in Official Gazette dated September 18, 2018 and numbered 30539).According to the General Assembly of Civil Chambers for Jurisprudential Unification, domestic arbitral awards rendered after the effective date of New CPL are subject to the annulment regardless of the date of the arbitration agreements. Since the Court classifies the arbitration agreements as procedural agreements, therefore as a natural, valid qualification of procedural law, procedural law rules shall be immediately applied. Thus, an arbitral award delivered after the entry into force of New CPL is subject to annulment procedure with respect to the New CPL.In addition, the Court also states that arbitration agreements represent parties’ free will and this formation of the arbitration agreements is a substantive law element. Therefore arbitration agreements signed before October 1, 2011 are subject to the Former CPL in terms of their formation and validity. However domestic arbitral awards rendered after such date shall be subject to the New CPL in terms of annulment.Consequently, the Court states that domestic arbitral awards rendered after the effective date of New CPL (October 1, 2011) shall be challenged with an annulment action without considering the execution date of the arbitration agreement.
 

CAPITAL MARKETS

Q3/2018 Capital Markets Board Decisions on Market Abuse

  • Article 4(3) of the Communiqué on Market Abuse states that, trading in capital market instruments by persons, their spouses, children or cohabitants who have insider information during the period following the end of the accounting period in which financial tables and reports along with independent audit reports are prepared until such tables and reports are disclosed are deemed to be an act of market abuse.In relation to the above mentioned provisions, Capital Markets Board (the “CMB”) resolved, in its decision dated July 13, 2018, No. 30/831, that the share purchase transactions to be conducted on Borsa İstanbul A.Ş. Equity Market will not fall under the scope of Article 4(3) of the Communiqué from July 13, 2018 until August 31, 2018.  The CMB decision dated July 13, 2018 only covers the share purchase transactions to be conducted on Borsa İstanbul A.Ş. and not the share sale transactions.However, CMB has annulled the above mentioned decision with a new decision dated July 15, 2018 and numbered 31/832 due to speculations and general negative perception occurred from the market. The CMB has announced that the former decision has been adopted upon the demands of the investors in order to encourage the share buy-back programs and that the insider trading is regulated under Capital Market Law and such decision of the CMB did not amend the crime or the sanction of this crime.

Q3/2018 Application of Uptick Rule for BIST 100 Shares

  • Pursuant to the announcement Borsa İstanbul A.Ş. made on August 13, 2018, the “Uptick Rule” shall be applicable for BIST 100 shares, starting from August 14, 2018 as well as Group (A) and Group (B) shares (as defined by the Borsa İstanbul Equity Market Operations Procedures and Principles dated March 1, 2016 and No. (02.UUE.01)) Accordingly, short sale transactions on BIST 100 shares are required to be conducted with a price higher than the price of the latest transaction executed on the BIST. If the latest price was higher than the previous one, the short sale transaction could be executed at the latest price.

Q3/2018 Announcements on Derivative Transactions

  • The Banking Regulation and Supervision Agency (the “BRSA”) has made an announcement on August 15, 2018 and indicated that; total notional principle amount of banks’ currency swaps and other similar products (spot and forward foreign currency transactions) with foreign counterparties where at the initial date local banks pay TRY and receive foreign currency, cannot exceed 25% of the bank’s the most recently calculated regulatory equity. In this regard, unless current excess is eliminated, no further transactions of these types could be executed and maturing transactions shall not be renewed. The above mentioned ratio shall be calculated daily on a consolidated and solo basis. The limit was previously set as 50% by the BRSA on its announcement dated August 13, 2018.On August 17, 2018, the BRSA has made another announcement and indicated  that, in addition to the swap transactions, forward, option and other similar derivative transactions of banks (other than swaps), in which local banks carry out to receive TRY at the maturity date, have also been included within the scope of the limitation set forth above. Transactions conducted by Turkish banks with their foreign subsidiaries will be exempted from the calculation of such 25% limit, on the condition that such subsidiaries are credit or financial entities subject to consolidation with Turkish banks.On September 17, 2018, the BRSA made another announcement and indicated that, transactions with a maturity of “90 to 360 days” shall be weighted 75% and transactions with a maturity of “360 days and over” shall be weighted 50%.

Q3/2018 Foreign Currency Prohibition on Agreements between Turkish Residents

  • As per Article 4(g) of the Decree No. 32 Regarding Protection of the Value of Turkish Currency (Official Gazette: August 11, 1989) (“Decree No. 32”), recently introduced by the Presidential Decree No. 85 (published in the Official Gazette dated September 13, 2018 and numbered 30534) (the “Presidential Decree”) the agreement value and other payment obligations arising from (i) sale and purchase of moveable properties and real estate, (ii) all kinds of leasing of moveable properties and real estate including vehicles and financial leasing, (iii) employment, (iv) service and (v) construction agreements conducted between Turkish residents are prohibited to be agreed in a foreign currency or to be indexed to a foreign currency and values of previously executed agreements shall be re-determined as Turkish Lira by their parties.Furthermore, the Ministry of Treasury and Finance has amended the Communiqué on the Decree No. 32 (Communiqué No. 2008-32/34) (published in the Official Gazette February 28, 2008 and numbered 26801) and introduced exceptions to the above-mentioned restriction. The recent amendments have been published in the Official Gazette dated October 6, 2018 with immediate effect. The following contracts, among others, are exempt from such restriction:
    • Employment contracts that will be (i) performed outside Turkey, or (ii) executed by a non-Turkish citizen, or (iii) executed by a non-Turkish resident’s (a) branches, representations, offices, liaison offices or (b) companies, in which a non-Turkish resident holds directly or indirectly at least 50% of the shares, that are located in Turkey, or (iv) executed by companies located in free trade areas, only as part of their activities in such areas;
    • Service contracts, a party of which is (i) a non-Turkish citizen, or (ii) a non-Turkish resident’s (a) branches, representations, offices, liaison offices or (b) companies, in which a non-Turkish resident holds directly or indirectly at least 50% of the shares, that are located in Turkey, or (iii) companies located in free trade areas, only as part of their activities in such areas;
    • Service contracts concluded as part of export, transit trade, sales and deliveries deemed as export, and services and activities generating FX;
    • Financial leasing contracts which fall within the scope of any of exemptions set out under Articles 17 and 17/A of the Decree No. 32;
    • Contracts executed by public institutions and organizations, and companies owned by the Turkish Armed Forces Foundation;
    • Contracts to be entered into by and between contractors and third parties for the purpose of performing obligations under FX denominated/indexed tenders, contracts and international treaties that have been executed by public institutions and organizations;
    • Contracts to be executed by banks in connection with transactions carried out by the Ministry of Treasury and Finance in accordance the Law No. 4749 on Public Finance and Debt Management;
    • Issuance, purchase and sale of FX denominated capital market instruments under the Capital Market Law and the secondary legislation thereof, and FX denomination of any payment obligations relating to the relevant transactions.

Q3/2018 Reporting of OTC Derivatives by Intermediary Institutions and Portfolio Management Companies

  • Derivative transactions conducted or intermediated by Intermediary institutions or portfolio management companies (the “Companies”) started to be reported by the Companies to the Central Registry Agency (Merkezi Kayıt Kuruluşu) (the “CRA”) on September 11, 2018.Banks and other companies, leveraged transactions and transactions of the Companies with local banks are not within the scope of this requirement and pursuant to the General Letter of the CRA dated September 7, 2018 and no. 834.Earlier, the Capital Markets Board (the “CMB”) announced that prior to the enactment of the regulation and establishment of the technical requirements, a format will be set up for the reporting of OTC derivatives to the CRA.Furthermore, the CMB issued the Regulation on Activities, Working and Supervision Principles of Data Storage Institutions (the “Regulation”) (published in the Official Gazette dated September 19, 2018 and numbered 30540) which entered into force on its publication date. The Regulation sets forth the principles and procedures regarding the obligations and duties of the Data Storage Institution and the method of keeping the information reported to Data Storage Institution.On a separate note, on August 27, 2018, Borsa İstanbul made an announcement and indicated that they will establish an organized swap market as an alternative to OTC swaps. Borsa İstanbul already runs a derivative market and this swap market will be another organized market that will be offered to market participants.
This legal newsletter has been prepared for informational purposes only; it has not been prepared for advertising purposes or with the intention of creating an attorney-client relationship. It does not seek to provide information on all legal developments in Turkey with the quarter specified. None of the information contained in this legal newsletter shall constitute legal advice or anything akin thereto. To unsubscribe email the Editor: newsletter@pekin-pekin.com

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