Over 120 million debit cards in Turkey

Where does the CMB come in terms of regulation in the fintech space?

The areas within the responsibility of the CMB may be classified into three main groups: primary markets, secondary markets, and financial intermediation. With regards to fintech regulation, CMB focuses on the potential benefits and risks fintech could bring to these main areas. Fintech activities such as distributed ledger technology, institutional trading platforms, retail trading, and investment platforms may be related to abovementioned activities that the CMB regulates. The latest regulatory attempt to have emerged from the growth of fintech is crowdfunding. There is an apparent funding gap, especially for early-stage companies in Turkey, while certain types of investors seek different projects to include in their portfolio. To respond to these needs, an amendment to the Capital Markets Law is being drafted to allow the operation of crowdfunding platforms in Turkey. The draft law has been prepared in a way to amend several articles of the Capital Markets Law.

What technological solutions have been put into practice by CMB as a regulatory response to technological innovations in the last decade?

CMB introduced the Public Disclosure Platform (PDP) in 2009. PDP is used by public companies and capital markets institutions such as investment firms and investment funds to timely disclose information to all stakeholders. PDP also serves as an electronic archive. Another solution is found in the Turkish Commercial Code, and holding general shareholder meetings on electronic platforms is now compulsory for companies on Borsa Istanbul. The Central Registry Agency developed and put into service the electronic general meeting system (e-GEM), a pioneering application for listed companies and their investors. Using e-GEM and personal e-signatures, operations can be carried out by accessing and reviewing meeting documents, registration, attending concurrent meetings, assigning delegates, receiving and giving voting instructions, pre-recording (pre-registration) of votes, offering suggestions, expressing opinions, asking questions, voting, and receiving voting results instantly. To increase competition with respect to fund distribution, the Turkey Electronic Fund Trading and Information Platform (TEFAS) was established as an electronic platform in January 2015. It provides access to all mutual funds operating in Turkish capital markets via single investment account, with the exclusion of mutual funds subject to special conditions. TEFAS is a fund supermarket easing access for the investors to the desired mutual funds. TEFAS is also designed as a fund data platform that enables performance comparison of funds by investors. Both retail and institutional investors can use TEFAS. Finally, Borsa Istanbul has established its co-location center, enabling market participants to place their own trading systems/servers at Borsa Istanbul Data Center. Market participants—especially HTF traders—have the opportunity to access the market systems in a faster and more reliable manner. These are some of the technical innovations that have been introduced aiming to increase efficiency, speed, and interconnectedness.

How do you keep up with the fast-moving developments in the fintech space?

Financial technologies play an important role in delivering innovative products and services in capital markets and have the potential to transform capital markets by offering investors easier access to better financial services. On the other hand, some products may not be suitable for certain investors. Therefore, our main objective as a regulator is to ensure that consumers are adequately protected while supporting innovation. In this regard, to keep up with fast-moving developments in the fintech space, we try to explore how regulatory requirements and technology can be aligned through financial technology. We are also reviewing our regulatory approach with the aim of encouraging and supporting fintech, assuring it will not erode consumer protection or the integrity of the our regulated financial system. In this regard, we work together with all the market participants in the industry—from asset/fund managers to FMIs and investment firms—to ensure efficient technological infrastructure and effective regulatory environment.

What is the role of traditional finance institutions vis-í -vis the role of new players in the market, and how much does regulation need to adjust?

Over the past several years, technology has revolutionized the banking and financial services sectors. The costs of developing new technologies have fallen significantly over the past decade. This improved the competition and efficiency in the market and has enabled new actors like crowdfunding/P2P platforms to enter the market. Crowdfunding is an ideal venue for small businesses to access funding to fuel growth. P2P equity and P2P lending can stimulate growth through a fast and cost-effective mechanism; on the other hand, they may pose some risks to the financial markets. Therefore, we are working actively to facilitate and regulate crowdfunding because of its potential economic and social benefits but remain aware of potential threats to our financial markets, especially with regards to financial consumer protection. We are not against the idea of companies operating like intermediaries as in the case of P2P equity and P2P lending. The fast growth of crowdfunding over the past years would not have been realized if P2P platforms were operated only by conventional financial institutions. Taking into consideration the increasing role of crowdfunding in financial markets and the attractive growth of the P2P platforms, it is obvious that conventional financial institutions cannot be oblivious to the evolution of crowdfunding. Options for conventional financial institutions for the future may be to start their own online P2P platforms, buy out these P2P platforms before they have a chance to gain too strong a foothold in the industry, or to cooperate with one of these platforms. Also, current regulations that are prepared considering the infrastructure of conventional financial institutions will not be adequate for this fast-growing industry. Regulations need to be adjusted to take into consideration the characteristics of this industry while securing the appropriate degree of protection for investors.

What role can CMB play in realizing Turkey’s ambition to become the world’s first cashless society, and what role will fintech play in that process?

The vision endorsed by Interbank Card Center of Turkey (BKM) is to have a 100% cashless society by 2023: it is an aspirational way to celebrate the 100th year of the Turkish Republic. In Turkey, there are over 120 million debit cards, 59 million credit cards, and 2.3 million POS machines in the market. Additionally, the country launched its first-ever national payment scheme, Turkey’s Payment Method (TROY), in 2016 that can be deemed as an innovation in the local payments market. Payment schemes are mostly related to the banking sector. From the capital markets’ point of view, cashless payment schemes are instrumental in easing and securing transactions. For instance, we may expect payment systems to play an integral and crucial part for the operations of crowdfunding platforms. With the use of cashless payment in crowdfunding, people will be able to fund particularly startups by electronic payment schemes by taking advantage of speed and security both for the investors and entrepreneurs. There is widespread use of credit cards in Turkey. Additionally, growth in smartphone ownership along with advancements in mobile payment technology has changed the way people conduct their financial transactions. Although the use of mobile payment technology gradually increases, payment culture is still dominated by credit cards in Turkey. 54% of contributions in private pension plans are paid by credit cards, according to 2016 statistics.