Governing foreign currency transactions is one of the important aspects of preserving and managing the value of Turkish Lira, as a result the sector and its main actors such as banks and exchange offices are highly regulated.
Authorized Institutions are defined in Resolution no. 32 Regarding the Protection of the Value of Turkish Currency (“Resolution no. 32”) as joint stock companies permitted to perform foreign currency transactions within the framework of procedures and principles set forth by the Ministry of Treasury and Finance (“Ministry”) that can also perform transactions regarding precious metals, stones, and items.
The matters of establishment, activities, opening branches, responsibilities, and supervision of Authorized Institutions are regulated under the Communiqué no. 2018-32/45 of the Resolution no. 32 published in the official gazette numbered 30317 and dated January 30, 2018 (“Communiqué no. 32/45”). The Communiqué no. 32/45 separates Authorized Institutions into 2 groups depending on their permitted activities, as Group (A) and Group (B) Authorized Institutions, with Group (A) having a broader range of activities.
In this framework, Group (B) Authorized Institutions can;
- Buy and sell foreign currencies except for bank money.
- Exchange foreign currencies with larger or smaller bills, or other foreign currencies except for bank money.
- Buy foreign currency checks within the framework of procedures and principles determined by the Central Bank of the Republic of Turkey (“Central Bank”).
- Buy and sell ornaments, coins, and other similar printed golds produced by the Directorate General of Mint and Stamp Printing House.
- Buy and sell physically, standard unprocessed gold in the form of bars under 1 kg (24 carat and above).
- Buy, sell, or exchange foreign currency through bank transfers with banks, Authorized Institutions, or their customers, provided that the transfer order or the physical delivery is made within the same business day.
And Group (A) Authorized Institutions can, in addition to all activities of Group (B) Authorized Institutions;
- Provided an activity permit to become a Precious Metals Intermediary Institution from the Ministry is received; import and export precious metals and stones, and non-standard unprocessed precious metals, and perform transactions regarding precious metals and stones ongoing at Borsa İstanbul A.Ş. (“Borsa İstanbul”), within the framework of the Regulation on Activity Principles of Precious Metal Exchange Intermediary Institutions and Establishment of Precious Metals Intermediary Organizations published in the official gazette numbered 26528 dated May 21, 2007 (“Regulation on Precious Metals Intermediaries”).
- Buy and sell physically, standard unprocessed gold in the form of bars or bullions of 1 kg and above (24 carat and above).
- Buy, sell, or exchange foreign currency through transfer institutions with banks, Authorized Institutions, and their customers, provided that the transfer order or the physical delivery is made within the same business day.
- Upon the Ministry’s permission, perform purchase and sale of foreign currencies through cash machines in their center and/or branches and other approved locations.
- Buy and sell foreign currency through bank cards without limitation, and through prepaid cards for up to USD 10k.
- Provided a permission is received form the Ministry, transfer foreign currency coins and bills abroad.
- And to perform other activities allowed by the Ministry.
In addition to the above listed activities, it is also stipulated under the Communiqué no. 32/45 that Group (A) Authorized Institutions can be representatives of electronic money institutions and payment institutions. However, with the recent Regulation on Payment Services, Electronic Money Issuance, and Payment Service Providers published in the official gazette numbered 31676 dated December 1, 2021 Authorized Institutions are explicitly prohibited from being representatives of electronic money institutions and payment institutions.
The rules set forth in the Communiqué no. 32/45 also prevent Authorized Institutions from performing activities other than the regulated activities for Group (A) and Group (B) Authorized Institutions. Authorized Institutions are also not allowed to perform derivatives, transactions with credit cards on behalf of their customers, or to perform transactions in installments. They cannot accept Turkish or foreign currency, documents allowing payment these currencies, precious metals or items produced with precious metals, or any movables or immovables as trust and deposit such on behalf of others even for short durations.
Both Group (A) and Group (B) Authorized Institutions are required to receive permits from the Ministry for establishment of companies and starting their activities. The conditions and application processes for the establishment permit and the activity permit are determined separately. The conditions for establishment are as follows:
- Capital of Authorized Institution cannot be less than TRY 10 million for Group (A) and TRY 5 million for Group (B)
- Turkish resident founding partners and persons who own 10% or more shares of legal person founding partners, persons related to the legal person partners, company’s general manager, members of the board of directors, signatories and for Group (A) Authorized Institutions the internal audit officers are expected to have the necessary financial power and the required honesty and reputation, and they may not;
- Be bankrupt, have declared concordat, or have a resolution of postponement of bankruptcy
- Be convicted of crimes determined under the Communiqué no. 2018-32/45 (e.g. various financial crimes, fraud, money laundering)
- Be a partner, general manager, chairman of board of directors, member of board of directors, or internal audit officer of an Authorized Institution whose activity permit or branch activity permit has been annulled due to non-compliant activity within the last five years, or have declared false information to the Ministry or an affiliated Authorized Institution be subjected to administrative fines as stipulated under Communiqué no. 2018-32/45
- Have themselves or their companies of which they own 10% or more, overdue tax debt in accordance with the relevant legislation
- Authorized Institution shall be an incorporated company
- The company shall be established exclusively to perform Authorized Institution activities
- Their trade name shall include the necessary terms depending on whether they are Group (A) (“Yetkili Müessese” for Authorized Institution) or Group (B) (“Sınırlı Yetkili Müessese” for Limited Authorized Institution) Authorized Institutions
- Their shares shall be registered shares and issued against cash
- Their articles of association shall be in accordance with the legislation on protection of the value of Turkish currency
Upon the approval of establishment permit application, the institutions are required to apply for the activity permit providing documentation regarding the necessary payments and the other material criteria such as the installation of the camera systems or the hiring of the relevant internal audit officers determined by the legislation.
As mentioned above, Group (A) Authorized Institutions can also perform certain activities and transactions involving precious metals and stones with a Precious Metals Intermediary Institution activity permit from the Ministry. Group (A) Authorized Institutions may apply for this permit in accordance with the Regulation on Precious Metals Intermediaries, presenting documentation showing that their partners, persons who own 10% or more in their legal person founding partners, company general manager, members of the board of directors, signatories, and internal audit and supply chain compliance officers possess the qualifications determined under the Regulation on Precious Metals Intermediaries. These qualifications are like the qualifications set forth with the Communiqué no. 32/45. Applicants also cannot be a Precious Metals Intermediary Institution whose activity permit is annulled within the last year as specified in Regulation on Precious Metals Intermediaries, a subsidiary or a legal person who owns 10% or more of such institution. Upon receiving the activity permit, institutions are also required to make a membership application to Borsa İstanbul.