As it is known, Law on Amendments to Income Tax Law and Certain Laws and Statutory Decrees numbered 7420 and dated November 3, 2022 ("Law No. 7420"), which introduces amendments to various legislation including Income Tax Law numbered 193 and dated 31/12/1960, is published in the Official Gazette dated November 9, 2022 and numbered 32008. In this context, articles 10, 35 and 146 of Banking Law numbered 5411 and dated 19/10/2005 ("Law No. 5411") and articles 39 and 50 of Financial Leasing, Factoring, Financing and Savings Financing Companies Law numbered 6361 and dated 21/11/2022 ("Law No.6361") are also amended by Law No. 7420. This information note is prepared in order to explain the amendments to these provisions.

For detailed information on other legislation amended by Law No. 7420, the full text of the law is available here.

I. Amendments to Law No. 5411

It is seen that the amendments to Law No. 5411 with articles 17, 18 and 19 of Law No. 7420 are related to the provisions of Law No. 5411 on granting operating permission, outsourcing institutions and administrative fines:

  • It is clarified that the BRSA may also grant operating permissions by imposing restrictions or limitations on the fields of activity

As it is known, under article 10 of Law No. 5411, it has been stated that the banks which are permitted to be established in Turkey or permitted to open up branches in Turkey pursuant to this Law must also obtain an operating permission from the Banking Regulation and Supervision Agency ("BRSA") and, within this context, that these operating permissions granted within the framework of this provision shall cover all the activities mentioned in article 4, which regulates the fields of activity of the banks, and within the framework of the limitations specified in the last paragraph of the said article of Law No. 5411 unless otherwise decided by the BRSA.

However, the aforementioned provision is amended by article 17 of Law No. 7420 and provision "The BRSA shall be authorized to grant an operating permission for a bank or a bank groups by imposing restrictions or limitations on the fields of activity listed underarticle 4" is added to the said provision. Thus, the fact that the BRSA is also authorized to grant an operating permission by imposing restrictions or limitations on the fields of activity is clarified by also emphasizing under mentioned provision.

In particular, when the article's preamble is examined, it is emphasized that in order to limit the risks of players such as new generation digital (branchless) banks that provide services only in the digital environment, it is important to grant limited or restricted operating permits to these players as in the world examples.Within this context, it is also possible to state that one of the objectives of the aforementioned amendment is to clarify the regulatory framework of the limited operating permissions granted to players such as the digital banks.

As will be further discussed below, it is also regulated that the failure to comply with the activity restrictions or limitations imposed by the BRSA within the scope of the first paragraph of article 10 of Law No. 5411 will be subject to administrative fine sanctions pursuant to the provision added to article 146 of Law No. 5411 with article 17 of Law No. 7420.

  • It is explicitly regulated that the BRSA is authorized to set the procedures and principles regarding the outsourcing institutions and to authorize these institutions according to the nature of the service received

As known, an outsourcing service institution has been defined in article 3 of Law No. 5411 with the title "Definitions" as "The institution which handles in the name of the bank the activities of the bank, except for acceptance of deposits or participation funds, and lending of all kinds and types of cash and non-cash loans, and other transactions considered as loan for the purposes of implementation of this Law, and which offers auxiliary services to the bank in management and handling of such operations, also including the marketing of any of such operations, other than acceptance of deposits or participation funds, except for advertisement" and the main issues to be considered in outsourcing by the banks have been determined in general under article 35 of the Law, which regulates outsourcing institutions.

On the other hand, the BRSA is granted with certain authorities with article 35 of Law No. 5411. Thus, within the framework of this provision, the BRSA has the authority to determine the subjects of outsourcing services that the banks may receive, or to limit or prohibit these subjects in respect of the banks or bank groups, or to impose requirement liability insurance, or to impose conditions of permission on such "depending on the kind of the outsourcing service".

With article 18 of Law No. 7420, the sentence "to set the procedures and principles to be followed by outsorucing institutions and other service providers while providing these services depending on the kind of services to be received, to authorize them or" is added to the last sentence of the first paragraph of article 35 of Law No. 5411 instead of the sentence "depending on the kind of theoutsourcing service". Therefore, the BRSA's authority to determine the procedures and principles regarding the institutions providing outsourcing services and to impose administrative fine sanctions directly to the relevant service provider pursuant to article 148 of the aforementioned Law in case of non-compliance with the procedures and principles to be determined within this framework is expressly and clearly stated.

On the other hand, while only "outsourcing institutions" were included in the wording of the provision previously, the term of "other service providers" is explicitly included to the said provision with the amendment. Hence, when the article's preamble is examined, it is understood that one of the purposes of these amendments to the article is to clarify that "companies to be established by at least five banks or financial institutions" mentioned under the fourth paragraph of article 73 of Law No. 5411 are also within the scope of article 35 and, therefore, that the BRSA is authorized to set the procedures and principles to be followed by these companies.

Finally, with the amendment to the article, the BRSA's authority to authorize the outsourcing institutions or other service providers according to the nature of the service to be received is added to the BRSA's existing authority to impose conditions of permission on such services depending on the kind of outsourcing service.

  • A new subparagraph is added to article 146 which regulates the administrative fines

With the sub-paragraph (t) added to the first paragraph of article 146 of Law No. 5411 on administrative fines for institutions by article 19 of Law No. 7420, it is regulated that in cases of;

  • Failure to comply with the restrictions under the last paragraph of article 4 which regulates the activities that may be carried out by banks; or
  • Failure to comply with the activity limitations or restrictions imposed by the BRSA pursuant to the first paragraph of article 10,

an administrative fine of no less than one million Turkish Liras and, in the event that a benefit is provided, no less than twice the amount of the benefit provided, up to one hundred percent of the amount that constitutes a violation of these restrictions and limitations will be imposed.

II. Amendments to Law No. 6361

The following amendments to the second paragraph of article 39 on the financing contract and the first paragraph of article 50 on the revocation of operating permission of Law No. 6361 are made with the articles 30 and 31 of Law No. 7420.

  • It is made possible to conclude the general contracts required between the financing companies and the sellers in electronical environment as well.

As known, a financing contract is a contract regulated by article 39 of Law No. 6361 and which sets forth that granting loan for each sort of goods and services receiving by making payment directly to the seller by delivering or providing goods or services in the name and account of real person or legal entity purchasing the good or the service. The financing companies are also required to execute a general contract in advance with the sellers who provide the goods or services which are to be granted loan in addition to the financing contract within the scope of this activity.

In fact, prior to the amendment to the article by Law No. 7420, this general contract to be executed with the sellers who provide the goods or services was required to be made "in written" pursuant to the second paragraph of article 39 of Law No. 6361. However, the aforementioned provision is amended in accordance with technological developments by article 30 of Law No. 7420 and it is made possible to execute these contracts not only in writing but also from distance through the use of remote communication tools.

  • Forfeiture of the establishment conditions or forfeiture of the qualifications of founders by the company shareholders are added among the causes for revocation of the operating licenses regarding factoring, financing and financial leasing companies and are added among the causes that lead to the application of article 50/A of the aforementioned Law regarding savings financing companies.

With the subparagraph (g) added to the first paragraph of article 50 of Law No. 6361 which regulates the causes for revocation of the operating licenses regarding financial leasing, factoring and financing companies by article 31 of Law No. 7420, stating that "forfeiture of the conditions under the first paragraph of article 5 of the Law or the qualifications of founders by the company shareholders", it is regulated that in cases of;

  • Forfeiture of the establishment conditions set forth in article 5 of Law No. 6361 or
  • Forfeiture of the conditions required for the founders by the company shareholders,

the operating licenses of these companies will be revoked by the BRSA's decision. Thus, forfeiture of the establishment conditions set forth in article 5 of Law No. 6361 and the forfeiture of the qualifications of founders by the company shareholders are listed among the causes for revocation of the operating licenses for the aforementioned companies.

On the other hand, with article 31 of Law No. 7420, the following provision is added as the last sentence to the first paragraph of said article of Law No. 6361: "In the event that the circumstances specified in the subparagraph (g) of this paragraph occurs for savings financing companies, the BRSA is authorized to revoke the operating licenses of such savings financing companies and to decide on their liquidation within the scope of the first paragraph of article 50/A. The second, third and fourth paragraphs of the same article shall apply to the savings financing companies decided to be liquidated."

As it is known, the first paragraph of article 50/A of Law No. 6361 has regulated the revocation of the operating licenses of savings financing companies and their liquidation, and the BRSA is given the authority to revoke the operating licenses of these companies and decide on their liquidation in case that the circumstances specified in the said provision occur. In this context, the forfeiture of the establishment conditions or the forfeiture of the conditions required for the founders by the company shareholders are also included in the scope as a result of the amendment by Law No. 7420, and the BRSA is given the authority to revoke the operating licenses of savings financing companies and to decide on the liquidation of these companies within the framework of article 50/A in case the aforementioned situations occur.

III. Effective Date

The provisionsof Law No. 5411 and Law No. 6361 amended by Law No. 7420 entered into force on 09/11/2022, when Law No. 7420 was published in the Official Gazette.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.