Unauthorized Activities in Capital Markets – Finance and Banking


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Capital market activities as defined in Article 34 of the Capital Markets Law No. 6362 (the “LMC“) are activities of capital market institutions falling within the scope of the CML, investment services and activities and other ancillary services falling within the scope of the CML. capital market activities, the authorization of the Capital Markets Board of Turkey (the “advice“) is required. Obtaining authorization is particularly important given that the consequences of the Council’s determination that such activities are carried out without Council authorization can have serious consequences.

II. Capital markets activities

According to Article 2 of the CML, “capital market instruments, issuance of such instruments, public offerings, capital market activities, capital market institutions, exchanges and other organized markets where capital market instruments are traded, market operators, Turkish Association of Capital Markets capital, Turkish Association of Appraisers, Central Clearing Houses, Custodian Institutions, Central Securities Custodian and Capital Markets Council“are submitted to the CML.

On the other hand, capital market activities are not numerus clausus, therefore, they cannot be conclusively listed. They are defined in article 34 of the CML as “the activities provided for by the Law and the investment services and activities and other ancillary services falling within the scope of the Law “.

With reference to article 34, article 37 of the CML lists the investment services and activities as follows:

  1. Receive and place orders relating to capital market instruments,
  2. Execute orders relating to capital market instruments for and on behalf of the client or in his name and for the client,
  3. Purchase and sale of capital market instruments from his account,
  4. Portfolio Management,
  5. Investment advice,
  6. Brokerage of sales by underwriting during the public offering of capital market instruments,
  7. Intermediation of unsecured sales during the public offering of capital market instruments,
  8. Operation of multilateral systems of sale and purchase and other organized over-the-counter markets,
  9. Custody and management of capital market instruments on behalf of clients and portfolios,
  10. Carry out other services and activities determined by the Council.

The ancillary services that may be provided by investment firms and portfolio management companies are defined in Article 38 of the CML as follows:

  1. Provision of financial market advisory services,
  2. Lend or lend and provide services in foreign currency on services and activities to be determined by the Council, including the financing of projects, without prejudice to foreign exchange regulations,
  3. Investment research and financial analysis regarding transactions or providing general advice regarding capital market instruments,
  4. Provision of subscription services,
  5. Provide brokerage services in terms of borrowing or financing,
  6. Wealth management and financial planning,
  7. Other services and activities to be determined by the Council.

III. Capital market institutions

In accordance with Article 35 of the CML, the list of capital market institutions authorized to carry out capital market activities is as follows:

  1. Investment firms
  2. Collective investment undertakings
  3. Independent audit, assessment and rating agencies that will operate in the capital market
  4. Portfolio management companies
  5. Mortgage finance institutions
  6. Housing finance and asset-backed finance
  7. Asset rental companies
  8. Central clearing house
  9. Central conservation companies
  10. Central repository institutions
  11. Other capital market institutions as determined by the Council

As a result, capital market institutions have not been listed as numerus clausus and the Board is empowered to define other capital market institutions, as appropriate.

IV. Mandatory permits for investment services and activities

In accordance with Article 39 of the CML, in order to provide investment services and regularly exercise the capital market activities listed above, obtaining the authorization of the Board is mandatory. Consequently, investment services and activities can only be provided and carried out by investment firms, set up in application of the Notice on the rules of establishment and activity of investment firms No. III-39.1, provisions relating to investment trusts, portfolio management companies and stock exchanges are reserved.

The permit request varies depending on the activity and service requested. A certificate of authorization will be issued by the Council, indicating the investment services and activities to which the authorization is granted. The list of investment firms holding activity permits and the type of activity permit are available on the Régie’s website.

On the other hand, to perform ancillary services, instead of a permit, notification to the Council is required. Pursuant to article 7 of the Communiqué on the principles relating to investment services and activities and ancillary services No. III-37.1 (the “Communicated“), ancillary services may be provided by investment firms without having to obtain a certificate of authorization in accordance with principles determined by the Board. Ancillary services must be notified to the Board. Unless otherwise specified by the Board within a time limit of 20 (twenty) days following the notification, the ancillary services can be performed in accordance with the Communiqué.

V. Unauthorized activities

If the Council identifies activities being carried out in the capital markets without authorization, the Council files a criminal complaint against the persons with the Attorney General’s Office. Under Article 109 of the CML, persons who engage in unauthorized activities in the capital markets can be sentenced to 2 (two) to 5 (five) years imprisonment and a judicial fine of 5,000 ( five thousand) to 10,000 (ten thousand) days. This judicial fine would be at least 100,000 TRY (~ 6,750 EUR) when calculated on the minimum daily amount of 20 TRY (~ 1.35) EUR according to the court ruling.

In addition, in accordance with article 99 of the CML, the Council is authorized to take all kinds of measures in order to stop the activities carried out without authorization, and to bring an action to cancel all the consequences resulting from activities and unauthorized transactions on the capital markets and to return the liquidity or the instruments of the capital markets to the beneficiaries within one (one) year from the date on which the Board identified these activities and in any case in a period of 5 (five) years from the date of occurrence.

In addition, under Article 8 of Turkish Penal Code No. 5237, an offender outside Turkey, who has been engaged in capital market activities subject to the approval of the Council, can be held responsible for his activities. concerning Turkey.

VI. Conclusion

Capital markets are heavily regulated and severe penalties, including jail terms and court fines, can be imposed for violations. This includes investment services and capital market activities, which can only be performed by properly established investment firms, crowdfunding, capital market instruments, brokerage activities, etc. If it is not certain whether a party is authorized to carry on the activities, they can check the status on the Commission’s website which is accessible to the public.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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