The Turkish capital markets have undergone many regulatory amendments and adjustments this year to provide a more robust environment in terms of transparency, competition, and stability for investors. As regulators have kept manipulative transactions in their sights to overcome the panic created by COVID-19, the Turkish Capital Markets Board (CMB) has imposed many sanctions and penalties.
Amendments to Capital Market Law
Amendments to Turkey’s Capital Market Law that came into effect on February 25, 2020 included regulations as to the sanctions and measures available to authorities for infringements and principles as to significant transactions and exit rights and security trustees, as well as increasing flexibility for crowdfunding platforms. The amended CML foresees that, in determining the administrative penalty for legal entities, the highest amount of either the gross profit or sales revenue will be taken into account, and an unintentional obstruction of an audit is included in the actions requiring an administrative penalty.
Additionally, the amended CML enabled investment enterprises to engage in project finance transactions and to securitize project finance tools and introduced the Debt Instrument Holders Board to represent investors and issuers.
Subsequently, as secondary legislation to the amended CML, Communique No. II-23.3 on Significant Transactions and Exit Rights came into force (as published in the Official Gazette of June 27, 2020), setting forth regulations as to the scope of significant transactions and exit rights of minorities. Pursuant to the Communique, certain transactions that had previously been regarded as significant transactions were excluded. Among other things, the Communique also regulates the determination of shareholders entitled to exit and the principles for determining the price of an exit right.
Digitalization of Finance Agreements
The Law Regarding the Amendments to Certain Laws and Decrees No. 7247 allows certain types of financial agreements, such as leasing agreements, factoring agreements, and agreements between finance companies and their customers to be concluded via remote or electronic forms of communication that the relevant institution accepts as a replacement for the written form and through which customer identity validation is possible.
Restriction on Dividend Distributions for Capital Companies
As a precautionary measure to mitigate the negative impacts of COVID-19, a transitional provision was added to the Turkish Commercial Code No. 6102. Accordingly, for all non-state-affiliated companies, where questions about the distribution of cash dividends concerning the 2019 fiscal year are on the agendas of general assembly meetings to be held before September 30, 2020: (i) profits of years before 2019 shall not be distributed; (ii) dividends from the 2019 fiscal year shall not exceed 25% of the net profit of 2019; and (iii) the board of directors shall not be granted the authority to distribute dividend advances.
Amendments Regarding Mortgage Finance Companies
Communique No. III-59.1 on Covered Securities, Communique No. VII-128.8 on Debt Instruments, and Communique No. III-58.1 on Asset-Backed and Mortgage-Backed Securities contained amendments to soften the principles and procedures that mortgage finance corporations (MFC) are subject to.
In this regard, Communique No. III-59.1 states that the threshold regarding the circulation of covered securities will no longer be applicable for covered securities issued by MFCs, while fees payable to the CMB as to the issuance of covered securities will be half for MFCs. Additionally, the fees payable to the Capital Markets Board for MFCs will start to accrue after December 31, 2021.
Furthermore, the amended Communique No. VII-128.8 foresees that the issue threshold stipulated by it is not applicable to MFCs, and fees payable to the Capital Markets Board for the issuance of debt securities will not be collected until the end of 2021 – and after the end of 2021, half of such fees will be collected.
Finally, the upper issuance threshold under Communique No. III-58.1 will no longer apply for asset-backed and mortgage-backed securities issued by MFCs or funds founded by MFCs, and half of the fees payable to the Capital Markets Board will be collected for asset-backed and mortgage-backed securities issued by MFCs or funds founded by MFCs. Communique No. III-58.1 also foresees that fees payable to the Capital Markets Board for MFCs or funds founded by MFCs will start to accrue after December 31, 2021.
By Hulya Kemahli, Partner, CMS Turkey