Turkey has one of the world’s fastest growing economies and is poised for incredible digital transformation. Its rapid growth in internet usage and mobile connections,1 young population and a government keen to modernize have fueled innovations in the banking and payments sectors, and its fintech ecosystem has swiftly developed. Istanbul’s strategic location as a nexus between Europe, Asia and the Middle East makes it a particularly attractive hub for international banks and fintech companies.
Despite the emerging market’s promising outlook, a recent deceleration in reforms and the COVID-19 pandemic have weakened Turkey’s economic and financial sectors. Although Turkey had a 2020 growth rate of 1.8%,2 one of the few countries in 2020 to have avoided an economic contraction, the health crisis accentuated gender and income inequalities, unemployment skyrocketed and the value of the lira plummeted. The country’s overall economic prospects are expected to improve in 2021, with a projected GDP growth of 5.7%,3 but the financial sector still faces an uncertain future. The first quarter of 2021 saw a sharp loss in the banking sector’s profits4,5 and inflation stood at 16.6% in May 2021.6 Turkish President Recep Tayyip Erdoğan continues to promote interest rate cuts7 and fired Central Bank President Naci Ağbal in March.
Turkey’s post-COVID recovery offers the country a chance to spearhead further digital transformation goals alongside its economic ones. The $15.4 billion Turkey Relance recovery plan, which emphasizes competitiveness and cohesion,8 mainly provides short-term economic relief, but the government has shown it is eager to revamp digitalization efforts. In June 2021, Technology Minister Mustafa Varank stated that Turkey “aims to become a trend-setting country” in innovative technologies like artificial intelligence.9 Former Central Bank President Naci Ağbal announced in December 2020 that a conceptual phase on the possible development of a central bank digital currency had been completed, and that the bank aimed to begin pilot tests in the second half of 2021. Other key priorities for 2021 include the regulation of digital currencies and bolstering cybersecurity.
Financial Regulatory Authorities
The Central Bank of the Republic of Turkey (TCMB) is the primary banking authority in the country.
The Personal Data Protection Authority was established under the Law on the Protection of Personal Data to pass and enforce data protection regulations in Turkey.
The Banking Regulation and Supervision Authority (BRSA) is responsible for overseeing and regulating the Turkish banking sector.
Policy, Laws and Regulations
New Reporting Requirement for Digital Currency Exchanges, 06 May 2021
Minister of Treasury and Finance Lütfi Elvan announced that digital currency exchanges are now required to report transactions over TRY 10,000 (approximately USD $1200) to the Financial Crimes Investigation Board (MASAK). On 01 May 2021, a presidential decree added crypto platforms to the list of entities obliged to comply with AML regulations. The Central Bank is also reportedly considering the establishment of a central custodian bank for holding digital assets, a capital threshold for digital currency exchanges and a requirement that crypto executives adhere to a certain standard in their understanding of digital currencies. This crackdown on crypto follows the April 2021 arrests of employees at two digital currency exchanges on allegations of massive fraud.
The Central Bank published a regulation banning the usage of cryptocurrencies and cryptoassets in the direct or indirect purchase of goods and services. Additionally, no service can be provided that allows for the direct or indirect use of cryptoassets and cryptoassets may not be utilized in the provision of payment services and the issuing of electronic money. Neither can payment service providers develop business models that facilitate the direct or indirect use of cryptoassets in the provision of payment services and the issuing of electronic money, or provide services related to such business models. The Central Bank cites crypto’s volatility and its use in illegal activities. The regulation went into effect 30 April 2021. A bill on the regulation and exchange of cryptocurrencies is expected to be introduced in October.
Video Identification in Banks’ Digital Onboarding, 05 April 2021
The Regulation on Remote Identification Methods to be Used by Banks and Establishing Contractual Relationships in Electronic Environment was published in the Turkish official gazette. Modeled after BaFin’s procedures for video identification in Germany, the regulation aims to facilitate and clarify the use of video identification by banks in digital onboarding. It defines requirements for the verification of the customer’s identity document, verification of the customer and authentication of the customer via an SMS one-time passcode (OTP) by video communication. The video communication must be uninterrupted, in real-time and of high image and sound quality. Software solutions must have been manufactured in Turkey, and providers and manufacturers must have R&D centers and response teams located in-country. This emphasis on technological sovereignty is echoed often in Turkish regulation and government rhetoric. The regulation went into effect 01 May 2021, and could be key in heightening financial inclusion for people who live in rural areas, the elderly and others for whom in-person onboarding presents challenges.
Turkey Unveils Cybersecurity Plan, 26 December 2020
Turkey unveiled its three-year National Cyber Security Strategy and Action Plan, which outlines 40 actions and 75 implementation steps in strengthening the country’s cybersecurity framework. Overall objectives include protecting the cybersecurity of critical infrastructure, further empowering teams combating cyberthreats, developing technological solutions for operational purposes, increasing awareness in cybersecurity and investing in cybersecurity-related human capital. According to the Transport and Infrastructure Ministry—which formulated the plan in partnership with public and private sectors, NGOs and universities—Turkey successfully thwarted 325,000 cyberattacks since 2018, utilizing Turkish software like Avcı, Azad and Kasırga.10
The plan comes amidst a concerted effort to strengthen national cybersecurity and encourage the development of innovative Turkish solutions. In February 2020, Turkey established the National Cybersecurity Intervention Center (USOM) in Ankara, which collaborates with public and private companies in addressing cyberthreats, especially denial-of-service attacks.11 The center, a subsidiary of the national Information Technologies and Communications Authority, relies on Turkish software.
1. Kemp, Simon. “Digital 2021: Turkey.” DataReportal, 11 February 2021. https://datareportal.com/reports/digital-2021-turkey
2. Kucukgocmen, Ali. “Turkey emerges from COVID-19-hit 2020 with 1.8% economic growth.” Reuters, 01 March 2021. https://www.reuters.com/article/us-turkey-economy-gdp-idUSKCN2AT1UE
3. “Turkey Economic Snapshot—Economic Forecast Summary (May 2021).” OECD, May 2021. https://www.oecd.org/economy/turkey-economic-snapshot
4. Petrova, Aleksia. “Turkish banks' net profit down 39% y/y at end-Feb.” SeeNews, 29 March 2021. https://seenews.com/news/turkish-banks-net-profit-down-39-yy-at-end-feb-736190
5. “Turkish state-run banks may need taxpayer funds to meet losses – academic.” Ahval, 10 June 2021. https://ahvalnews.com/turkey-banking/turkish-state-run-banks-may-need-taxpayer-funds-meet-losses-academic
6. “Turkish inflation falls unexpectedly to nearly 16.6% in May.” Daily Sabah, 03 June 2021. https://www.dailysabah.com/business/economy/turkish-inflation-falls-unexpectedly-to-nearly-166-in-may
7. “Turkish lira crashes to record low on Erdogan’s call for rate cut.” Al Jazeera, 02 June 2021. https://www.aljazeera.com/economy/2021/6/2/turkish-lira-crashes-to-record-low-on-erdogans-call-for-rate-cut
8. “Turkey—Government and institution measures in response to COVID-19.” KPMG, 28 October 2020. https://home.kpmg/xx/en/home/insights/2020/04/turkey-government-and-institution-measures-in-response-to-covid.html
9. “New ‘Turcorns’ on the way: Minister.” Hurriyet Daily News, 10 June 2021. https://www.hurriyetdailynews.com/new-turcorns-on-the-way-minister-165412
10. Şimşek, Barış. “Turkey launches 3-year cybersecurity action plan.” Daily Sabah, 29 December 2020. https://www.dailysabah.com/politics/turkey-launches-3-year-cybersecurity-action-plan/news
11. “Turkey's new center set to beef up nationwide cybersecurity.” Daily Sabah, 10 February 2020. https://www.dailysabah.com/turkey/2020/02/10/turkeys-new-center-set-to-beef-up-nationwide-cybersecurity
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Last updated: November 2021