On 27 September 2018, the Turkish Capital Markets Board (the "CMB") published an announcement regarding Initial Coin Offerings ("ICO") in its weekly bulletin.

According to the brief introduction made in the bulletin, most token transactions (such as blockchain-based transactions) remain unregulated by the CMB, and the procedures and nature of such transactions are explained.

According to the announcement, the CMB considers ICOs to be highly risky and speculative investment models, so investors intending to purchase digital assets are therefore reminded to examine carefully what is promised in exchange for digital assets.

RISKS OF ICOs

The CMB sets out the following risks that should be taken into consideration by investors while engaging in an ICO process:

• Many ICOs are outside the mandate of the regulatory bodies and are not subject to any regulation or surveillance.
   
• Similar to cryptocurrency, considerable volatility may be observed in the values of purchased tokens.
   
• Collected funds may not be ultimately used for the purposes initially announced.
   
• There may be incomplete and misleading information in the documents provided by the sellers.
   
• Since the projects funded through such practices are in general at an early stage, there is an increased risk of project failure, and the loss of the entire investment may be at stake.

FUTURE REGULATION

The CMB declared in the announcement that work is in progress regarding the issuance of secondary regulations on the principles and procedures regarding crowdfunding activities to be carried out under the capital market legislation.

It was, however, also pointed out that the token sales may have certain similarities with public offerings and crowdfunding schemes, but also differ from such transactions in ways, meaning that the approach and position of the CMB regarding token sales will have to be analysed on a case-by-case basis.

In this context, the CMB clearly stated that, prior to any such secondary regulations entering into force, various kinds of administrative sanctions would be implemented by the CMB regarding unauthorised crypto asset sale activities carried out in the name of crowdfunding. Accordingly, the CMB strongly recommends that investors refrain from entering into such potential transactions.

This final statement seems to imply that the CMB intends to make a distinction between ICOs or token transactions relating to unauthorised crowdfunding projects, from those regular blockchain-based transactions known as cryptocurrency or token sales, similar to the approach taken by European markets. On the other hand, the CMB is giving out signals that it will have a say on the market, and therefore, any developments in this respect in Turkey will have to wait for secondary regulations to be issued.

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In compliance with Turkish bar regulations, opinions relating to Turkish law matters that are included in this client alert have been issued by Özdirekcan Dündar Şenocak Avukatlık Ortaklığı, a Turkish law firm acting as correspondent firm of Gide Loyrette Nouel in Turkey.