Turkish Parliament has introduced significant changes to Banking Law No. 5411, the Debit Cards Law No. 5464 and the Financial Leasing, Factoring and Finance Companies Law No. 6361. The amendment law (the “Amendment”) has been published in the official gazette of February 25, 2020 and entered into force.

The following are the main changes introduced by the Amendment.

~ Transactions qualified as “loan”

The Amendment expands the scope of development and investment banking activities that are considered to be loan transactions under the Banking Law. Banking Regulation and Supervision Agency (BRSA) has become authorized to define the newly introduced financing methods as loan transactions.

~ Risk Groups

With an effort to meet the principles published by Basel Committee on Banking Supervision, the Amendment expands the definition of risk group for banks. The children and spouses of the managers are now included in the risk groups of the relevant bank.

The Amendment provides that the banks owned by Turkey Wealth Fund and Turkey Wealth Fund Management Co. or their funds will individually constitute a risk group.

~ Turkey Wealth Fund

The Amendment provides that the transactions with Turkey Wealth Fund, Turkey Wealth Fund Management Co. or their funds; the bonds, securities and other similar debt instruments issued or guaranteed by these institutions will not be subject to credit limits.

~ Participation, development and investment banking

To enhance the development and investment banking activities, the Amendment expands the possible sources of funds for these institutions. Additionally, the reform paves the way for development and investment banks to operate with interest free methods and authorizes BRSA to determine the principles for these operations. The partnerships invested by participation, development and investment banks in interest free methods will not be considered within the risk group of the relevant bank.

~ Action plans for systemically important banks

The banks with systemic importance will prepare an action plan in which the necessary preventive measures are laid out in the events with potentially adverse effect on bank`s financials and submit these plans to BRSA. It is envisaged that these banks will also immediately inform the BRSA of any event with potentially adverse effect and BRSA will be entitled to request the bank to implement the necessary measures without waiting for the bank to take action.

~ Financial markets manipulation

The Amendment defines financial markets manipulation as transactions and practices aiming to create artificial supply, demand or price formation, including exchange rate; broadcasting misleading or wrong information through various mediums including the online sources; misleading the savings account holders or to conduct transactions and practices with the same objective. BRSA has become entitled to determine any other practice that will constitute financial markets manipulation.

~ Customer secrets, data protection and information systems

The Amendment provides a clear definition of “customer secret” and clarifies the duties of banks arising from Personal Data Protection Law with respect to customer data. Accordingly, any data collected by the bank within the scope of a customer relationship formed due to a banking activity will be regarded as a customer secret. The customers explicit consent as per data protection law will not suffice for the bank to transfer customer data to third parties, however, the customers` specific instruction for such transfer will be required. Further, the Amendment grants authority to BRSA to restrict the transfer of any customer or bank secret outside Turkey and, based economical safety considerations, to require the banks to maintain their information systems and backups in Turkey.

~ Administrative fines

The administrative fines foreseen under Banking Law No. 5411, the Debit Cards Law No. 5464 and the Financial Leasing, Factoring and Finance Companies Law No. 6361 have been significantly increased and sanctions are aggravated.

~ Central Bank authorized for setting bank fees

The Amendment authorizes Central Bank of the Republic of Turkey to determine any types of fees, expenses and commissions charged by the bank for any transaction such as lending, transfer, deposits, foreign trade and credit cards.

~ Minimum capital requirement for factoring companies

The minimum required paid in capital for incorporation of a factoring company is increased from TRY 20,000,000 to TRY 50,0000,000. The existing factoring companies are required to increase their capital within one year following the effective date of the Amendment.