Category: Turkiye

On February 10, 2017, the Capital Markets Board of Turkey (the “CMB”) published amendments to the following communiqués:

• Communiqué on Principles Regarding Investment Services and Ancillary Services (“Investment Services Communiqué”);
• Communiqué on Public Disclosure Platform No. VII-128.6 (“Public Disclosure Platform Communiqué”); and
• Public Disclosure Communiqué No. II-15.1 (“Public Disclosure Communiqué”).

The new amendments are effective as of February 10, 2017.

New Disclosure Requirements

Amendments to Investment Services Communiqué

• The leverage ratio for foreign exchange (“FX“) transactions decreased from 100:1 (in certain cases 50:1) to 10:1, applicable for all FX transactions.
• The margin requirement for FX transactions increased from TRY 20,000 to TRY 50,000 or its equivalent in a foreign currency.
• Although the amendments are effective as of February 10, 2017, brokerage firms have a 45-day transition period to align open positions with the new requirements.

Amendments to Public Disclosure Platform Communiqué

• Third party service providers can now make public disclosures on the Public Disclosure Platform (the “PDP“) on behalf of foreign entities whose securities are traded on the Borsa Istanbul, provided the necessary confidentiality requirements are met and that the parties have executed a service agreement. The Central Registry Agency (the “CRA“), the operator of the PDP, will determine the details for issuing disclosures on behalf of foreign entities.

Amendments to Public Disclosure Communiqué

• The disclosure obligation for the issuers shall commence when the CMB approves the offering circular or issuance certificate, as the case may be.
• Fund users of lease certificates (sukuk) were required to comply with all requirements under the Public Disclosure Communiqué, while non-listed companies issuing securities through private placement and companies listed in the Equity Market for Qualified Investors were out of the scope of the Public Disclosure Communiqué. The foregoing fund users, non-listed companies and companies listed in Equity Market for Qualified Investors (“Partial Obligors”) are now required to comply with the disclosure obligations under the Public Disclosure Communiqué, except for certain obligations relating to inside information and continuous information.
• The Public Disclosure Communiqué requires the companies listed in the Equity Market for Qualified Investors to make disclosures under certain provisions of the Public Disclosure Communiqué on Non-Public Companies No. II-15.2, such as in case of liquidation or application to dissolution of such companies.
• Issuers of securities other than shares through public offering will make disclosures in cases of (i) resolutions rendered on issuance limit, (ii) any tranche issuance and default on principal payments on such tranche, and (iii) any secondary market repurchase transactions (except shares) they have executed with their related parties. In addition to these, Partial Obligors are required to issue disclosures on any changes to their financial condition and/or activities that could have an adverse effect on their ability to fulfill their obligations against securities holders.
• The thresholds for the disclosure obligation of the transactions executed by persons with managerial responsibility, persons closely related to these persons and the principal shareholder (real or legal person) regarding (i) the shares representing the capital and other securities relying upon such shares and (ii) the issuers’ capital markets instruments other than the publicly offered shares, have been increased to TRY 250,000, from TRY 50,000 and TRY 100,000 respectively. In both cases, the public disclosure must be made following the transaction.
• If it deems necessary, the CMB may request issuers to publish disclosures in other languages, along with Turkish language disclosure.
• The issuers’ board of directors is now required to adopt an internal policy on disclosure obligations, which in turn will expedite in the process of public disclosure.
• The public disclosure guideline was updated to reflect the recent changes.
• Disclosures on changes in the issuers’ shareholding structure or management control can now be made until 9 a.m. rather than 8 a.m. on the third day following the changes.

Conclusion

The CMB has tightened FX transactions by decreasing the leverage ratio and increasing margins to enhance investor protection in the Turkish FX market. This has caused an unexpected shock among the FX community and will materially affect the size of the FX operations. Additionally, as part of its pursuit for more secure and investor-friendly markets, the CMB is enhancing transparency by broadening the scope of disclosure obligations.

By Muhsin Keskin, Partner, Baker McKenzie

Turkey’s first and only law specifically dedicated to data protection and privacy, the Law No. 6698 on Protection of Personal Data (“Law No. 6698”), came into force on April 7, 2016 with certain transition periods. The Data Protection Board has been formed, but is not yet functioning. The secondary legislation is still pending, although certain sector-specific regulations have been put in place, and is expected to be completed by April 7, 2017.

The Law No. 6698 is essentially based on the EU Directive 95/46/EC (“Directive”) with particular differences. As Turkey does not have a history of data protection laws and practice, the interpretations of the Directive in the EU will shed a light unto the interpretation of the Law No. 6698. That said, EU is in a period of transition to a new data protection regime and has recently introduced a game changer, the General Data Protection Regulation (“GDPR”), which will enter into force on May 25, 2018. Directive will no longer be applicable once the transition is over. Therefore the Directive should not alone be taken into account when construing the provisions and implementation of the Law No. 6698.

Among the provisions of the Law No. 6698, one of the most debated provisions and the one which is highly likely to lead to further discussions and disputes in the future, is Article 5/2(e) of the Law No. 6698. The article provides a legal ground for processing of personal data without the data subjects’ explicit consent (which is the primary requirement for processing personal data), if the processing is necessary for the legitimate interests of the data controller. The provision corresponds to Article 7(f) of the Directive and Article 6/1(f) of the GDPR. 

The next part of this article will demonstrate how this provision (Article 5/2(e) of the Law No. 6698) is articulated in these three different regulations separately and will be followed by a comparison, highlighting their similarities and differences. The final part will consist of conclusions on the possible impacts of these differences in the Turkish jurisdiction and a discussion on whether the reasons that led to changes in the Directive could be used as tools of interpretation of the Turkish data protection law as well.

I. Conditions for processing personal data based on legitimate interest under the Directive 

Article 7(f) of the Directive states that personal data may be processed if it is necessary for the purposes of the legitimate interests pursued by the controller or by the third party or parties to whom the data are disclosed, except where such interests are overridden by the interests for fundamental rights and freedoms of the data subject.

The Directive provides that personal data may be processed for the purposes of the legitimate interests pursued by (i) the data controller or by (ii) the third party or (iii) parties to whom the data are disclosed. Then requires an evaluation of interests of the data controller/third parties versus interests “or” (this has been mistyped in the English version of the Directive as “for” (Art. 29 WP’s Opinion 06/2014)) fundamental rights and freedoms of the data subject.

This evaluation is commonly referred to as a “balancing test”. In this balancing test, one should weigh the nature and source of the legitimate interests and the necessity of processing for pursuing those interests, against the impact of the processing on the data subjects.

As for the data subjects’ right to object such processing, the Directive requires the data subject to justify its objection (Article 14 of the Directive). If there is a justified objection, then the processing instigated by the data controller no longer involves those data.

II. Conditions for processing of personal data based on legitimate interest under the GDPR 

Article 6/1(f) of the GDPR states that processing is necessary for the purposes of the legitimate interests pursued by the controller or by a third party, except where such interests are overridden by the interests “or” fundamental rights and freedoms of the data subject which require protection of personal data, in particular where the data subject is a child.

GDPR articulates this complementary legal ground quite similar to the Directive and requires the same balancing test. That said, the GDPR brings a significant difference regarding the personal data that belongs to children and the data processing performed by public authorities. 

GDPR expressly requires particular consideration onto children’s interests or fundamental rights and freedoms and information provided to them when processing of their personal data based on this provision. In practice this might lead to obtaining a parental consent before processing personal data of children or providing age restrictions as legal safeguards. Considering the purposes of this addition, the application might even be extended to the vulnerable segment of the population such as handicapped people or people who does not have or significantly lost their power of discernment for other reasons. Paragraph 75 of the GDPR’s recital also uses the term “vulnerable natural persons”, which is obviously broader and more comprehensive than “children”.

The other addition to the relevant provision in the GDPR is the second paragraph, which has not been mentioned above. According to this paragraph (Article 6/2 of the GDPR), Article 6/1(f) does not apply to processing carried out by public authorities in the performance of their tasks. This newly introduces exception prohibits public authorities from relying on their legitimate interests in processing of personal data, for the processing carried out in the performance of their tasks. The recital of the GDPR clarifies the reason of this amendment by stating that the legislators have the duty to provide legal basis through issuing laws for public authorities to process personal data in the performance of their tasks and prevents the public authorities from processing personal data based on their legitimate interest in the processing.

GDPR shifts the burden of proof, as to data subjects’ objection to processing, from the data subjects onto the data controllers. According to the GDPR, if the data subject objects to processing of its personal data, which is processed based on legitimate interests of the data controller, the data controller may no longer process the personal data unless the data controller demonstrates compelling legitimate grounds for the processing which override the interests, rights and freedoms of the data subject or for the establishment, exercise or defense of legal claims.

III. Conditions for processing of personal data based on legitimate interest under the Law No. 6698

Article 5/2(f) of Law No. 6698 also provides a quite similar provision which states that personal data may be processed without data subject’s explicit consent, if processing is necessary for the purposes of data controller’s legitimate interests, provided that the processing does not harm the data subject’s fundamental rights and freedoms. 

The reasoning of this provision issued by the legislator provided an example for implementation of this provision stating that owner of a company may process its employees’ personal data for arranging their promotions, salary increases or social rights or determining their role in the restructuring of the company, which constitute legitimate interests of that company. The legislator also indicates that although the explicit consent of the data subject is not required in these cases, the fundamental principles as to protection of personal data should still be complied with and the balance of “interests” of the data controller and the data subject should be taken into account.

The wording used in the provision’s reasoning is interesting considering that the provision does not mention the “interest” of the data subject but rather requires the processing not to harm the data subject’s fundamental rights and freedoms. The reasoning provides a wider protection in favor of the data subjects, which would also be consistent with the Directive and the GDPR.

IV. Comparison of the conditions provided under the Law No. 6698 with the Directive and the GDPR

The Law No. 6698 provides that personal data may be processed without obtaining consent, for the data controller’s legitimate interests, whereas the Directive and the GDPR provides that personal data may be processed for the purposes of the legitimate interests pursued by (i) the controller or by (ii) the third party or (iii) parties to whom the data are disclosed.

The balance test provided under the Directive and the GDPR require an evaluation of interests of the data controller/third parties versus interests or fundamental rights and freedoms of the data subject. However the Law No. 6698 only requires an evaluation of interests of the data controllers versus fundamental rights and freedoms of the data subject, without including the “interests” of data subjects in this assessment. As mentioned above, the reasoning of the law emphasizes the balance between “interests”. However this was not expressly articulated in the provision.

Besides, the GDPR expressly indicates emphasizes that data controllers should be more careful in processing data subject’s personal data based on their legitimate interest where the data subject is a child. The Law No. 6698 does not put a special emphasis on protection of personal data in cases where the data subject is child or any other person which might be considered vulnerable.

GDPR excludes public authorities from relying on their legitimate interests in processing of personal data, for the processing carried out in the performance of their tasks. The Law No. 6698 does not provide such an exception and allows public authorities to process personal data in the performance of their duties, based on their legitimate interest as well. 

Since the last two were not also included in the Directive, they might not have been consequently incorporated into the Law No. 6698. As for the data subjects’ right to object, the Law No. 6698 does not include a provision particular to processing conducted based on legitimate interests, and is silent on the burden of proof.

V. Conclusion

The legal ground provided under the Law No. 6698 for processing personal data based on legitimate interest is overall in line with the Directive and the GDPR. However there are particular differences in the wording of the provisions, which could lead to a significant deviation from the EU practice.

Turkish legislators excluded the legitimate interests of third parties and the parties to whom data are disclosed from the scope of this exception. This brings the question of whether the public’s overriding interest in having access to certain information, for instance the public’s interest in receiving information regarding the whistleblowing of irregularities in the public authorities or regarding felonies that concern the public or other information disclosed for transparency and accountability, will not be sufficient for disclosure and dissemination of such information to public or other groups (e.g. employees of a company) that are concerned. Would it be necessary to obtain the data subject’s explicit consent even when there is an overriding public interest in the processing in Turkey?

This question might find its answer in the forthcoming days through Data Protection Board decisions and court precedents on the matter or in the secondary legislation to be issued. Nevertheless, there are currently a couple of other provisions in the Law No. 6698, which might serve for the same purpose through interpretation. For instance the Law No. 6698 provides a number of exemptions from the application of the law. Among these exemptions, one of them provides exemption to processing of personal data within the scope of freedom of speech, but only if the processing does not breach national defense, national security, public safety, public order, economic safety, privacy of private life or personal rights. This provision might be construed for the interests of the public and third parties, and might serve as a legal ground for processing of data when there is public’s overriding interest, without requiring explicit consent of the data subject.

The Directive and the GDPR requires both “interests” and “fundamental rights and freedoms” of the data subjects to be considered when exercising a balancing test, whereas the Law No. 6698 does not mention the “interests” of the data subjects. Therefore the scope of application of the relevant exception provided under the Law No. 6698, in this respect, is broader when compared to the Directive. This would allow a wider area of processing personal data when there is a legitimate interest of the data controller, since data controller would be obliged to consider whether the data subject’s fundamental rights and freedoms override, rather than also considering whether their interests override the data controller’s legitimate interest in processing the data without the data subject’s consent.

There has been a quite important change in the GDPR, which shifted the burden of proof as to objections regarding processing based on legitimate interests, from the data subjects onto data controllers. On the other hand, the Law No. 6698 does not include any provision as to cases where the data controller has legitimate interest in processing personal data but the data subject objects to such processing and remains silent as to burden of proof in such cases. 

Adoption of a supra-national regulation (Directive) rather than a directly applicable law inevitably leads to certain gaps in the legislation for a civil law country. Nevertheless, the legislators could have at least addressed all the issues addressed in the Directive. This could have prevented further gaps and ambiguities in the legislation in addition to the ones inevitably borne. 

Furthermore the supra-national regulation that the Law No. 6698 is based on, is older than twenty years. As the EU legislation evolves, the Turkish legislators and the Data Protection Board should make use of the past experiences of the EU and construe and implement the Law No. 6698 and issue the secondary legislation in light of the GDPR which was a result of the remarkable data protection history of EU.

(First published in Mondaq on February 24, 2017)

By Gonenc Gurkaynak, Managing Partner, Burak Yeşilaltay, Associate, and Berk Doruk Ekinci, Associate, ELIG, Attorneys-at-Law

Many years in the making, the Istanbul Arbitration Centre (“ISTAC” or the “Centre”) was finally established in 2015 and began picking up steam in 2016. The first plans to form an arbitration Centre in Istanbul were laid out by the Turkish government in 2009 as part of the country’s action plan and broader strategy to make Istanbul a bigger financial hub.

This action plan includes goals such as simplifying the Turkish tax system, increasing the diversity of financial products and services available in Turkey, and enhancing Turkey’s legal infrastructure. In line with these goals, the concept for the Centre was designed by working groups among Turkish governmental agencies as well as relevant NGOs, which examined and took inspiration from leading arbitration Centres and institutions around the world. 

The result is an arbitration Centre which offers innovative and speedy resolutions of domestic and international disputes for competitive fees using rules which conform to accepted international practices.

The Rules

The ISTAC Rules, which appear to be influenced to a significant extent by the ICC rules, were officially adopted in October 2015. We view the ICC influence on the Centre’s rules as an advantage because local parties and practitioners in Turkey have a longstanding preference for and familiarity with the ICC rules. We predict that their transition to the ISTAC rules will be smooth. Similarity to ICC rules is also likely to make international parties more comfortable with ISTAC.

Two features of the ISTAC Rules which set the Centre apart from some of its international competitors and which mark their point of departure from the ICC rules are Fast Track Arbitration and Emergency Arbitration provisions. All disputes with a claim value under TRY 300,000 automatically go through Fast Track Arbitration, and parties to disputes with larger claim amounts may also agree to opt for Fast Track. The Fast Track timetable provides for the selection of an arbitrator within 15 days and the rendering of a final award within three months. The Emergency Arbitration provisions provide for the selection of a sole emergency arbitrator within two days of an application being accepted. The emergency arbitrator is required to establish a procedural timetable within two days of receiving the case file and issue a decision, without holding a hearing if deemed appropriate by the arbitrator, within seven days of receipt of the case file. We should note that the ISTAC Rules allow parties to seek interim measures from national courts concurrent with their involvement in emergency arbitration without waiving arbitration clauses or rights under the ISTAC Rules.

The Centre’s fees are calculated in Turkish liras and are competitive when compared to fees in the international arbitration market. The Centre markets itself as being significantly less expensive than Turkish domestic courts, which in many cases seems likely. 

Who’s Who

The members of the International Arbitration Board of the Centre are Ziya Akinci, Jan Paulsson, Hamid Gharavi, Candan Yasan, and Bernard Hanotiau. These are well-respected names on the local and international arbitration stage that we believe will be influential in growing the popularity of the Centre. 

Local practitioners have also recently formed the Istanbul Arbitration Association, which aims to make Istanbul a more widely used venue for arbitration (whether under the Centre’s rules or otherwise).

Relevance in Today’s Turkey and Looking Forward

Given Turkey’s desire to continue to attract foreign investment, we see the establishment of the Centre as timely and as a positive development for the Turkish market. Especially because of the current state of emergency, which has been in place since the attempted coup d’état of July 2016 (the direct effects of which have included a shortage in judges and a strain on the Turkish judiciary), we predict that the Centre will become an increasingly utilized legal resource. It has been reported that the new Istanbul airport project and water supply agreement between Turkey and Northern Cyprus contain ISTAC arbitration clauses. Also, on November 19, 2016, the Office of the Turkish Prime Minister issued a communiqué to governmental agencies describing the benefits of using the Centre and encouraging public and private establishments to use the Centre to resolve disputes, so the Centre is also enjoying support from the current administration. 

In light of the foregoing, we recommend that legal advisors working on Turkish deals and projects advise their clients about the potential time and cost benefits of using the Centre. 

By Noyan Turunc, Founding Partner, and Grace Maral Burnett, Attorney, Turunc

This article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Communiqué Regarding the Amendments to the Communiqué on Principles of Real Estate Investment Companies (“Communiqué”) has been published in the Official Gazette dated 17.01.2017 and numbered 29951 and entered into force at the date of its publication (“Amendment Communiqué”).

According to the Amendment Communiqué:

• Real Estate Investment Companies that will operate a portfolio composed of exclusively infrastructure investments and services (“REICs”) shall carry out the below stated steps within 2 years following the registration of incorporation or amendment of articles of association:
  • To build an organization which provides the necessary site, equipment and staff members for carrying out the operations,
  • To ensure that the qualifications of the assets in the portfolio and the significance of these assets in the company are in line with the stated limitations and provide the documents that prove this issue to the Capital Markets Board.
• In case the REICs only operate with the production license or similar prerogatives they have regarding infrastructure facilities, there is no obligation for REICs;
  • To make a statement in the articles of association that minimum 75% of the REICs’ total assets will be composed of infrastructure investments and services,
  • To invest at least 51% rate of the REICs’ total assets on real estates, real estate projects and rights based upon real estate.
• The period provided in accordance with the Communiqué on Corporate Governance to legalize the deposits, pledges, mortgages and sureties that are unlawfully issued against the provisions regulating the deposits, pledges, mortgages and sureties; begins with the registration of the incorporation or the amendment of the articles of association of the REICs that are incorporated or transformed to operate a portfolio with infrastructure investments and services.
• Only board of directors’ members with four years of higher education can take part in the committees that are established before board of directors based on the Capital Markets Board’s regulations. If a board of directors’ member is a legal entity, the natural person who is assigned by this legal entity in line with the Turkish Commercial Code shall also have a four year higher education degree to take part in the abovementioned committees.
• The decision regarding an assignment of a member to the board of directors shall be delivered to the Capital Markets Licensing and Training Agency (“CMLTA”) (Sermaye Piyasası Lisanslama Sicil ve Eğitim Kuruluşu A.Ş.) within 10 (ten) business days at the latest, with the documents proving that the assigned person qualifies for the conditions. The natural person that is assigned by a legal entity member of the board of directors for the purpose of representing such legal entity in line with the Turkish Commercial Code, shall be reported to CMLTA with the documents proving the possession of the conditions stated in Article 17.2 of the Communiqué, within 10 (ten) business days at the latest following the announcement of the registration.
• The real estates that will be included in the REICs’ portfolio shall comply with each other in terms of; (i) their qualifications in the land title registry, (ii) their type of actual use and (iii) their inclusion qualification to the portfolio. Nevertheless, if there is a building which is non-profitable, abandoned or registered as risky on the land that is in the possession of REICs; after determination of such conditions by means of a valuation report, the foregoing requirement of compliance will not be necessary provided that it is notified to the Capital Markets Board that these buildings will be demolished or their status in the land title registry will be amended.
• In addition to the transactions which REICs’ are legally prohibited from; REICs shall not lend money to their related parties for a purpose other than the sale of goods or services.
• REICs that will operate exclusively within the portfolio consisting of infrastructure investments and services are able to operate directly in the infrastructure facilities related to a generation license and/or infrastructural privileges; on the condition that these REICs possess the aforementioned license and/or infrastructural privileges.
• With the purpose of financing real estate investments within the portfolio of a subsidiary, the REICs can; establish  mortgages, pledges and limited real rights on the assets in its own portfolio, or also can issue securities, guarantees and sureties in favor of aforementioned subsidiary provided that the REIC holds %100 shares of the aforementioned subsidiary. 
• In case of the sale of the independent sections from the ongoing or completed real estate projects in the REICs’ portfolio where the current price of the independent sections are determined within the last three months of the REICs’ financial year; it is possible to use the determined price in the mentioned evaluation report in the following year, until the determination of the year-end prices of the assets of which the current price could not be determined within the last three months of the financial year of the REIC for any reason.
• Instead of determining the lease rate of the premises for lease such as shopping mall, business place, commercial storehouse, office and branch which are included in the portfolio separately, it is possible to have the lease rate of the entire premise determined at once. In the event that the lessee is a related party of the REIC, it is obligatory to have the lease rate of the relevant independent section that is leased to such related party determined.

In case that the current lease rate of the abovementioned premise is determined within the last three months of the financial year, it is possible to use the determined price rate in the mentioned evaluation report in case of the change of lessee or renewal of the agreement in the following year until the determination of the year-end prices of the assets of which the current price could not be determined within the last three months of the financial year of the REICs for any reason.

• The REICs are obliged to announce the purchasing transactions to the portfolio, leasing and selling transactions from the portfolio, the purchasing, selling and leasing transactions which exceeds 2% of the total assets stated in the latest financial tables of the REIC within 1 (one) business day following the completion of the transaction at the latest; the purchasing, selling and leasing transactions which does not exceed 2% of the total assets stated in the latest financial tables of the REIC within 10 (ten) business days following last day of the financial year through the Public Disclosure Platform.
• Article 45 paragraph 2 of the Communique stating “REICs cannot perform the distribution of dividends in cash prior to the public offering of the shares or sale of these shares to a qualified investor” shall not be applicable until 31 December 2017 to the REICs that exclusively manage their portfolio which is composed of infrastructural investment and services.

By Bilge Binay Kanat, Senior Associate, Ecem Baglarlıoglu, Junior Associate, Moral Law Firm