This content is from: Local Insights

Banking and secrecy laws

The Turkish government plans to make a number of changes to the banking legislation, particularly with regard to outsourcing services and banking secrecy. While previous attempts have failed, this time the government may actually succeed. The Draft Law Amending the Banking Law (Draft Law) and the Draft Law on Trade Secrets, Banking Secrets and Customer Secrets (Draft Secrecy Law) have finally made their way to the Justice Committee of the Turkish Parliament, which – though not the final stage – is an important step.

As per the Banking Law (Law 5411), a company qualifies as a financial holding company (FHC) if a majority of its direct or indirect affiliates take the form of financial or credit institutions. In practice, this has caused companies to be deemed FHCs, and thus subject to the regulatory requirements, even though they do not directly own a financial or credit institution. The Draft Law's new definition of FHC carves out the indirect shareholdings, thereby preventing involuntary membership in the FHC club. In addition, with a view to promoting the establishment of FHCs, the Draft Law eases the regulatory requirements and imposes laxer scrutiny. The involvement of the Banking Regulation and Supervision Agency (BRSA) will be limited to amendment of the articles of association, share transfers and financial reporting matters.

Under the Banking Law, services supplementary or complementary to a bank's main services are deemed outsourcing services, and (with certain exceptions) provision of these services by an outsourcing institution is subject to a licensing requirement. As the definition in the Banking Law provides no clear guidance as to which activities are "supplementary or complementary," in practice BRSA has had to deal with a heavy workload, resulting from numerous applications in connection with outsourcing agreements. The licensing requirement has also proved a deterrent both for outsourcing institutions and banks, subjecting them to a lengthy and difficult application process. Thus, in an effort to ease BRSA's workload and facilitate financial services outsourcing, BRSA has decided to remove the Banking Law's licensing requirement.

The Draft Law prohibits the outsourcing of certain activities in conjunction with (i) collection of deposits, (ii) granting of loans, (iii) advertisement of services, (iv) financial reporting, and (v) those that may be exclusively carried out by the board of directors or internal systems. Furthermore, in an effort to harmonise domestic standards with those created by the Financial Action Task Force related to money laundering and financing terrorism, the Draft Law prohibits the establishment in Turkey of shell banks and branches or representative offices of foreign shell banks. The Draft Law also subjects the opening of offshore branches and representative offices of locally licenced banks to the same requirements as domestic branches and representative offices, and is in fact criticised by the banks as overly restrictive in this regard.

To ensure the soundness of banks, particularly during periods of economic crisis, the Draft Law increases the minimum paid-up capital requirement from TL30 million ($20.4 million) to TL60 million. Additionally, the Draft Law doubles the system entry fee requirement sought during the licensing process. To obtain a banking licence, newcomers will have to pay a fee equal to 20% of the minimum capital requirement. Given that the new minimum capital requirement under the Draft Law is double the current one, the new entry fee quadruples the current fee. Newcomers will be obliged to pay a fee of TL12 million as opposed to the TL3 million required by the current legislation.

Per the Banking Law, a share acquisition or transfer of shares in a legal entity shareholder is not subject to BRSA's approval if it does not trigger thresholds in the Banking Law. However, BRSA plans to expand its scrutiny over legal entity shareholders, and has included a provision in the Draft Law subjecting acquisition or dilution of certain ownership interests to BRSA's approval. Accordingly, any transfer of shares in a legal entity resulting in an acquisition of shares representing 10% or more of a legal entity shareholder's issued share capital, or dilution of shares of an existing shareholder to less than 10%, 20%, 33% or 50% of the shares, will require BRSA's consent.

Although the three different concepts – trade secret, banking secret and client secret – serve the same purpose of protecting the interests of the legal owner, in practice longstanding controversy exists as to the definition of confidential information and the conditions of its disclosure. Not surprisingly, this has led to interpretation problems and disputes in the banking sector (especially between banks and individuals, and occasionally between banks and regulators) as to when certain information should be treated as confidential within the scope of banking or client secrets. Even the regulators themselves criticise the current legislation as inadequate in the fight against money laundering and financing terrorism, since the banks often deny regulators' information requests due to confidentiality even though no one seems sure what this means. To clarify this ambiguity, the Draft Secrecy Law provides specific definitions for trade secret, banking secret and customer secret, and clearly specifies the circumstances required for disclosure of confidential information. Hopefully, an end to the chaos is in sight.

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