Category: Turkiye

Turkey is the world’s tenth largest agricultural producer and a hub for many top global players in food production. The country is accelerating the integration of sustainability principles into the sector’s growth strategies.

In 2021, the lingering effects of the pandemic severely impacted supply chains and food production in Turkey. However, the investment outlook remains positive as the agricultural sector embraces a holistic sustainability approach to improve the overall sustainability position of the Turkish economy. Greening supply chain management is becoming a key issue for many buyers, in line with the various legislative pushes, especially in Europe, Turkey’s most important trading partner. It remains to be seen whether the initiatives now planned and implemented will be able to keep pace with the upcoming global regulatory changes and trends in sustainability.

In 2020, Turkish agriculture employed roughly 18% of the total workforce and contributed 6.6% to the country’s GDP. The total output of the sector has ranged from USD 37 billion to USD 51 billion in the last five years. The sector can be divided into three groups: producers (mainly family-owned farms), processors, and retailers. Many large multinational companies operate in Turkey, while the retail sector is mainly dominated by a handful of local food retailers. As the agricultural sector is of great strategic importance in Turkey, the sector’s sustainability initiatives will support Turkey’s overall green growth.

Although the first sustainability initiatives date back to the 2000s, awareness has increased in recent years, in line with global trends. Recent projects by processors and retailers have focused on sustainable and local raw material supply, through programs such as Good Agricultural Practices, to ensure sustainable agricultural production while addressing food safety and nutrition security concerns.

In addition, reducing and minimizing food waste is high on the agenda. The Turkish Ministry of Agriculture and Forestry and non-profit organizations have launched initiatives such as Protect Your Food and the Food Waste Prevention Project.

Social responsibility is also vital. The share of fragile employment is higher in agriculture. Family farms are scattered throughout Turkey, and it is important to improve the working conditions (economic and social) of these people – particularly women, through programs such as the Ministry’s Women Weaving Camlet and leading processors’ My Sister.

Agricultural and food exports form 12% of Turkey’s total exports, so international regulations on agricultural and food exports are also paramount. The EU is the most important export market, so EU procurement strategies, such as the Farm to Fork strategy and the Carbon Border Adjustment Mechanism (CBAM) under the EU Green Deal, will change the direction of the agricultural industry.

The Aegean Exporters’ Associations estimates that the total carbon costs that Turkish agricultural exports will face could reach EUR 150 million after the implementation of the CBAM. As a result, the participation of Turkish industry and government in projects to adapt to the EU Green Deal has never been more important to secure market access. The Turkish government is also strengthening the ESG framework through programs like the National Action Plan for Sustainable Land Management, prepared in accordance with the Food and Agriculture Organization, and the National Water Plan. These programs seek to ensure the effective use of natural resources – especially water and soil. There are also official projects to support local producers, such as the Herbal Production Development Project for the local procurement of imported agricultural materials, and social support programs for local farmers.

In addition, as explained in the Green Deal by the Turkish Ministry of Commerce in July 2021, Turkey will take further measures, such as reducing the use of pesticides and aligning with EU legislation on organic farming and land consolidation, all driven by the EU objective of sustainable agriculture.

The transition to sustainable food production is an essential capital-intensive economic shift, considering the regulatory wave from Europe. Further investment, in technology and R&D, will be required to meet growing demand and keep pace with global trends in sustainability and ESG. The future of sustainability in agribusiness should be shaped from a macroeconomic perspective, with microeconomic implementation. Legislation is also required to support this development, by creating the necessary regulations and leveling the playing field for companies, so that the front runners do not suffer a competitive disadvantage.

By Done Yalcin, Managing Partner, Yalcin Babalioglu Kemahli in Cooperation with CMS

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It is not often that a CEE law firm decides to expand beyond the borders of its home market. Seeking out clients abroad and maintaining a standard of quality service is not only taxing but may also prove harmful – if not planned correctly.

Turkish firm Nazali Tax & Legal is a compelling example of expansion done right. In the short span of just six years, this Istanbul-born firm grew to cover six jurisdictions in Europe and North Africa. We spoke with Senior Partner Fatih Uzun, who has been with the firm since 2016 and deals with customs and foreign trade matters, to learn more about how Nazali came to be, why it expanded, and what its plans for the future are.

CEELM: As a brief primer, can you walk us through the history of Nazali?

Uzun: Actually, Nazali is a young firm. We’ve been established in November 2015 – we are celebrating our sixth anniversary.

Ersin Nazali, our Founding Partner, was working as a tax inspector until, in 2012, he decided to make the switch to private sector consultancy work. After having worked at an international law firm for two years he decided to create Nazali. It was a small firm with just six people, at the time, but it grew immensely over a short period. Now, Nazali engages over 250 professionals in six jurisdictions.

CEELM: Can you tell us more about Nazali’s overall operations?

Uzun: Nazali has five offices in Turkey, which is our core jurisdiction. Here, we operate out of Istanbul, Bursa, Ankara, Izmir, and Denizli. Outside of Turkey, we have set up offices in Casablanca, Kyiv, Moscow, Amsterdam, and London.

Nazali provides the full scope of legal services with over 25 practices such as tax (certification, consultancy, and litigation), customs and foreign trade, social security and labor law, litigation, corporate law, M&A, data privacy and protection, intellectual property, accounting, competition law, and financial audit. The philosophy behind the firm is that both financial and legal solutions could be provided to clients under the auspices of one office and one brand – like a one-stop shop. Besides, each of our partners is diligently following up on the projects and in close contact with the clients. We believe our clients are also pleased with such a unified professional approach, as they do not have to shop around for different sources of advisory solutions.

An important feature, having to do with why Nazali is successful in helping our clients with more than just pure legal advisory, is the partner structure. We have 14 partners in total, some having long histories of working within governmental structures in Turkey (i.e., tax, customs, social security, competition law), while others have significant private sector experience in multinational entities and law firms. For example, I have spent 11 years with the Ministry of Customs and Trade of Turkey as a customs investigator, thus I can say that we have extensive experience in both the theoretical and practical aspects of the services we provide.

We know how the system works, inside and out – which gives Nazali a competitive advantage – and our clients can expect not only more detailed advice but advice that is more likely to be actionable and efficient in getting the deal through.

CEELM: Your work and speedy growth have not gone unnoticed abroad. In 2018 you partnered up with Andersen Global and cooperated for some time. What’s the story there?

Uzun: Our collaboration with Andersen Global first started in 2018. They approached us first, initially engaging us as a collaborator firm and then as a full member of their global network. We even ended up taking their name!

We were a part of the Andersen Global network for a while, which was a fruitful experience for us, but we eventually decided to part ways at the start of 2020. The rationale behind this was that we wanted to expand and grow under our own name, to further develop and expand under a brand of our own making.

Don’t get me wrong, Andersen Global is, historically, a very strong brand in its own right. But we were, simply put, of a different making. Our boutique approach to tax and legal – for both domestic and international clients – mandated a different approach to client work, as opposed to that of the huge tax advisory firms and their affiliate law firms.

Instead of going for volume and having hundreds and thousands of clients, we sought to nurture trust-based relationships with each client – as if they were our only one. Thus, we considered that our next logical evolutionary step would be in that direction, so we found it best to part ways with Andersen Global. It was not a difficult decision and we parted ways amicably.

CEELM: Soon after that, Nazali began setting up shop in many other jurisdictions. How did this come to be and what were the main drivers behind the decision to expand?

Uzun: After that, we focused on our own brand, and we wanted to be the first Turkish firm to expand outside of our borders. To date, I believe we are the only ones to have had such a foray with a Turkish brand.

Now, our main drivers for expansion were, of course, our clients. Working with a number of large international companies, while fostering our bespoke approach to each one of them, bore fruit in the fact that they wanted us to support their operations elsewhere, not just in Turkey. Having a broad base of specialized legal services, it was quite inviting for us to scale up and spread out.

We first set up in Casablanca – Morocco has a lot of strong ties to Turkey because several companies operate along that line, so we figured this was a logical move. Also, we weighed that this move would allow us to keep a beat on business in North Africa and use Morocco as a gateway of sorts, eventually.

From there, we followed our clients and the flows of the business. We went to Moscow, which naturally led to Kyiv next. We then set our sights on Amsterdam and, in the end – so far – London. It was such a natural and organic evolution of our brand because we moved smart and listened to our clients attentively.

CEELM: Being the first Turkish firm to expand abroad and set up direct office lines must have been challenging.

Uzun: It was a difficult decision, indeed. Our transition was made easy by the fact that we already had a few dedicated desks for these markets but the leap from a desk to a full office is a huge one.

Penetrating foreign markets, however much preparation we put into it, was not easy. Every market and every client – especially when you approach them with such care and attention to minute details as we do – presents a unique challenge. And, of course, each new challenge comes with different perspectives to doing business. But, as I mentioned, our main catalysts for growth were our clients – it was them, in a way, who decided which markets we would expand to. If it weren’t for them, asking us to engage them more and more in these jurisdictions, we never would have reached outside of Turkey.

The mechanism of expansion was not difficult to find – rather more difficult to implement. We expanded by reaching out and hiring local experts and well-established professionals and began onboarding them to our vision. The process of transplanting our philosophy onto each one of our centers abroad was tough. In fact, we are still facing some challenges to full, seamless integration when it comes to transmitting our philosophy to every corner of our operation. But it is getting better every day.

Don’t forget that we are still a young firm, so these sorts of growing pains are normal. Why, most of our expansions abroad – to Ukraine, the Netherlands, and the UK – came in the past two years. It is a natural path towards establishing brand recognition, and we are more than up to the challenge. We want our approach to ultimately be a unified one, offering business-first solutions across the board. In that way, we can grow with our clients as they themselves develop.

CEELM: Is there any synergy in this sort of network approach? Do the offices help each other out?

Uzun: All our markets are in synergy, really. Our offices are building a common knowledge bank and our entire know-how vault grows in synchronicity. As we learn more from our clients in, for example, Ukraine – we can support our clients in Russia better. This sort of professional exchange weaves a tight-knit brand presence and quality of service.

As for our home base, Turkey has a very robust economy, both in terms of its GDP and the number of qualified, educated professionals. The workforce is uniquely positioned, and the manufacturing capacity potential is high enough for the country to be able to capitalize on all of it, in the next two or three years. As Turkey experiences investor surges from various parts of the world, we will be in a better position to help them, based on what we have learned and gone through in other markets.

CEELM: The strength of your team outside of Turkey is 50 professionals. Which office is the most developed one and represents a balancing point for your network abroad?

Uzun: In terms of headcount – our Ukraine office is the biggest one at this point, followed by Morocco and Russia, the Netherlands, and finally the UK. But don’t be fooled by the numbers here. Our entire team – all 250 of us – works together as one. Approximately half of the team are qualified lawyers, with the other half being experts like certified public accountants, customs brokers, IT specialists, even engineers and the like. This allows us to balance both law stricto sensu and business advisory, making Nazali more than both by integrating them.

CEELM: Finally, Fatih, what’s next for Nazali? What’s in the pipeline and where do you plan to go next?

Uzun: Establishing a clear strategy during pandemic times has been difficult and challenging. We still wish to expand our business to many other markets, but we must do so carefully and not rush in.

We are currently considering establishing an office in New York – and we were close to doing so last year, but we postponed this endeavor due to the market changes ushered by COVID-19. We want to see if we can accurately profile how the market would react to us before we take the leap across the Atlantic.

We do not believe that bullish expansion is the answer, and it would only be more difficult to expand and attract a local clientele with which we have no previous ties. So, we are currently focusing more on maintaining a happy client base, fostering our current relationships, and growing a bit more vertically, in terms of experience and knowledge.

All in all, it will take some time to see how Nazali clients are behaving and follow the ebbs and flows of global business. There is no rush for us, especially with the world on somewhat of a hold due to the changing conditions spurred by the pandemic. We will employ a more careful approach and decide on our next step towards enlargement later, with the right call at the right time.

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

When much was happening around the world, especially with the global pandemic, we decided to start our firm – Guleryuz & Partners – in September 2020. We made a major investment ignoring all the current challenges, including COVID-19 and the sluggish Turkish economy.

Starting a new law firm literally from scratch has allowed me to notice the depth of the Turkish legal market. At first, the economic turmoil had a direct effect on the legal market since local clients were trying to scale back budgets. Political risks frighten foreign clients thus reducing their investments, meaning fewer opportunities for Turkish law firms and their lawyers. And, in this context, something challenges both local and foreign clients: problems associated with the judicial system and the weakening rule of law in Turkey. Extreme competitiveness is also a characteristic of the market, fueled by the ever-increasing number of lawyers available.

There have also been many positives, of course. First, despite Turkey’s own challenges, the country, a G20 member, also has long-term potential, with an increasing number of Turkish companies investing in other countries. Turkish lawyers are becoming more and more visible within the international scene, and the younger generation has a broader vision – in terms of foreign language, gender equality, sustainability, the rule of law, etc. At our law firm – and this also reflects our vision for the project from the start – we aim to work with those colleagues exemplifying the best qualities of a lawyer, those who can contribute towards a better, higher-toned market. In the long term, these positives will ultimately transform Turkey into a major player on the international stage. 

Under current circumstances, we are also working hard on effective forecasting. Considering the devaluation of the Turkish lira and the current economic turmoil, Turkish assets are now much more affordable, thus attracting foreign investors, which will lead to an increase in inward investment and M&A transactions. There will also be an increase in all types of litigation, especially shareholder disputes and debt collection-related matters – since more and more Turkish citizens are facing these challenges today and, unless there are solid changes within the country, the number of those affected by the turmoil will, unfortunately, increase.

As a new player on the market, you first work to become more visible, then to become prominent, then you work on grabbing major headlines – focusing on e-marketing, identifying the most suitable international associations, becoming active members – so there’s a lot of networking. Our positioning in international markets has recently afforded us invites to conferences in Paris and Budapest. While there, I heard impressions of the Turkish market, as seen from the outside. Our European colleagues have a great interest in the Turkish legal market, for both inward and outward referrals. It’s understandable, considering that Turkish companies, such as Getir, Sisecam, Tiryaki, Tav, Anadolu Efes, etc., have seen a massive expansion – in particular towards Europe – and are thus attracting European attention.

The current restrictions still make it quite difficult for a new kid on the block. However, I estimate that the amount of work available within the Turkish legal market will increase moving forward, due, in part, to the overall global situation and, in part, because of the new opportunities that the Turkish market has to offer – despite the turmoil it’s currently suffering.

By Tarik Guleryuz, Partner, Guleryuz & Partners

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

One of the most important inventions of the 21st century is undoubtedly the COVID-19 vaccine, with respect to its affirmative effect on public health. Before its invention, humanity had been battling a substantial rise in the number of COVID-19 cases, and the vaccine managed to raise hopes of controlling the pandemic. Likewise, Turkey, especially the Turkish Ministry of Health, has taken a lot of steps towards having individuals become more conscious of the importance of vaccination, in an effort to decrease the number of cases. Recently, the total number of shots administered has reached more than 119 million.

As the vaccination program continues, some controversial opinions regarding whether vaccination should be mandatory have been raised. The biggest issues are those raised between employers and employees. For instance, some corporations in Turkey have announced that employees who are not vaccinated can carry out their work from home but cannot enter the workplace. The employees’ reaction to this announcement was rather negative, as they claimed vaccination cannot be made mandatory. The government has announced that vaccines are not mandatory, however, instead, it brought in certain restrictions. With its announcement dated September 3, 2021, the Turkish Ministry of Labor and Social Security (Ministry) paved the way for employers to request mandatory COVID-19 tests from their unvaccinated employees. The Ministry stated that employers are required to inform all of their employees about the protective and preventive measures against the health and safety risks that may be encountered in the workplace. The Ministry also requested that employers, separately and in writing, inform those employees who have not completed their COVID-19 vaccination. It has been made mandatory for the employees who are not vaccinated after receiving such information to be notified by their employers regarding the possible consequences of a definitive diagnosis of COVID-19, in terms of labor and social security legislation. Most importantly, as of September 6, 2021, employers will be able to request that those employees who are not vaccinated against COVID-19 take a mandatory PCR test once a week.

The main controversy is whether all the measures taken due to the COVID-19 pandemic limit the fundamental rights and freedoms guaranteed by the constitution, given that both vaccination and tests are an intervention that violates physical integrity. The fact that these measures are taken through announcements, and not through laws, also creates additional controversy. On the other hand, employers have extensive occupational health and safety obligations and run the risk of being liable in the case of occupational accidents resulting from COVID-19. In this regard, employers are required to take all necessary measures to protect the health of their employees and prevent them from being exposed to occupational accidents resulting from COVID-19, which makes it very hard to strike a balance between the fundamental rights and freedoms and protecting public health.

It does not seem possible, at present, for employers to require their employees to get vaccinated, and terminating the employment agreements of employees who refuse to get vaccinated would be risky. Employers can implement encouraging internal regulations for their employees such as: (1) relying on COVID-19 measures (e.g., social distancing, mask requirements, etc.), (2) imposing remote working (if the current position of the employee is not suitable for remote working, the employee can be transferred to a position suitable for remote working by obtaining a written and wet-signed consent within six business days), (3) sending employees on paid leave on the day of vaccination, (4) covering transportation costs to the hospital for the employees who will be vaccinated, (5) starting the above-mentioned PCR test application, and (6) sending employees on annual paid leave. However, vaccination should not be a basis for different treatment. In other words, employers must make sure not to discriminate against unvaccinated employees and against those who refuse to provide a negative COVID-19 test result.

All in all, as the pandemic and the world’s fight against the virus evolves, the employers’ focus might have changed but COVID-19 will indisputably continue to be a trending topic for employers and their workforce for some time to come. Employers should continue to monitor all government authorities’ announcements and any possible legislative changes with respect to vaccination, and take the required actions.

By Sertac Kokenek, Partner, Esin Attorney Partnership

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An intermediary service provider is defined in Law No. 6563 on the Regulation of Electronic Commerce [“E-Commerce Law“] as “natural or legal persons that provide an electronic environment where others can conduct financial and commercial activities.” Electronic commerce platforms such as n11, Trendyol, GittiGidiyor, and Amazon, which are among the most important actors of electronic commerce today, are included in this definition under our legislation. In essence, these platforms mediate the contract’s conclusion and performance by bringing buyers and sellers together via the internet. In this article, the liabilities of e-commerce actors as “intermediary service providers” will be discussed in light of recent Court of Cassation decisions.

I. Liabilities Arising from E-Commerce Law

The E-Commerce Law imposes some obligations on intermediary service providers to create the environment of trust necessary for the proper conduct of electronic commerce, and the intermediary service providers’ liability for the transactions they conduct is limited to these obligations. Accordingly, the intermediary service provider is responsible of disclosing the relevant information determined by the Regulation on Service Providers and Intermediary Service Providers in Electronic Commerce [“Regulation”] to the buyers, protecting personal data, sending order notifications, and maintaining transaction records.

The intermediary service provider is not responsible of inspecting the content provided by users of its electronic environment, nor is it responsible of deciding on the legality of the goods or services provided via this content. 3rd Civil Chamber of the Court of Cassation also decided likewise in a judgment issued in 2021. According to the judgment, Çiçeksepeti could not be held liable for the content provided by the users since intermediary service providers are not obliged to investigate the defectivity of the goods and services subject to the sales contract between the seller and the buyer.

Nevertheless, intermediary service providers may be held liable for defective good or services if they violate their obligations in providing services to consumers as stipulated in the E-Commerce Law and detailed in the Regulation. Given that the intermediary service provider, due to its obligation to provide information, must ensure that the sellers [i.e., the service providers] present all the information required by the Regulation, in its decision, the 13th Civil Chamber of the Court of Cassation held GittiGidiyor liable for defective services.

II. Liabilities Arising from the Consumer Protection Law

Intermediary service providers are considered as “intermediaries in the establishment of distance contracts” within the framework of the Consumer Protection Law No. 6502 [“CPL“]. Since intermediary service providers are not parties to the distance sales contract between the seller or service provider and the consumer, their responsibility under CPL is limited to maintaining transaction records and disclosing this information when required. However, they may still be held liable for breach of contract with the seller or service provider.

In practice, the framework of services offered by intermediary service providers to buyers and sellers is usually drawn under “service conditions” or a “membership agreement”. Nevertheless, technical issues such as the provision of preliminary information and transfer of funds should be fulfilled through the systems of the electronic commerce platform in accordance with the Regulation on Distance Contracts. Thus, even in the absence of any conditions provided by the intermediary service provider, intermediary service providers and consumers are, beyond doubt, parties to a service agreement in the context of the CPL. However, unless provided otherwise, the liability of the platform is limited to matters such as keeping transaction records, providing information, and presenting the preliminary information form to the consumer. As a result, under CPL, the intermediary service provider is not responsible of ensuring the rights provided by distance sales contracts, such as the right to request a refund or replacement in case of defective goods or through the exercise of the right of withdrawal.

III. Prudent Business Man Rule

According to the Turkish Commercial Code No. 6102, merchants are obliged to act as a prudent businessman in their trade. In terms of intermediary service providers, this obligation originates from the fact that consumers primarily put their trust in the platform rather than the seller while shopping on electronic commerce platforms. Since consumers expect that the intermediary service provider has acted as a prudent businessman and created a business model that could not be abused by sellers in bad faith, they expect to have the support of the platform in a dispute against the seller. Hence, the platform can only avoid liability in the event of illegality originating from the seller by proving it has taken all necessary measures, as a prudent man would.

By virtue of this obligation, it is possible for the consumer, who has been negatively affected by the actions of the seller, to seek compensation from the intermediary service provider. A court decision in 2018 against GittiGidiyor sets a precedent regarding the intermediary service provider’s obligation to act as a prudent businessman. The Court of Cassation upheld the decision of the Court of First Instance, holding that the intermediary service provider is obliged to investigate the reliability of the sellers on the platform and is liable for the consumer’s losses caused by seller fraud. According to the court, the consumer puts trust in the brand of the platform, and for this reason, the platform must be held liable if it “aggrieves consumers by providing a venue for those who act maliciously and with fraudulent intent.”

In summary, intermediary service providers, one of the most important actors of electronic commerce, are responsible of providing information, protecting personal data, sending order notifications, keeping transaction records, and generally acting as a prudent businessman. Moreover, intermediary service providers must also investigate the reliability of the sellers and service providers on the platform as a part of their obligation to act as prudent businessmen. Therefore, even though they are not a party to the distance sales contract, they can be held liable for the consumer’s losses resulting from the violation of this obligation.

By Zahide Altunbas Sancak, Partner, Guleryuz & Partners

Pursuant to the Protocol No. 15 amending the European Convention on Human Rights [“ECHR / Convention“], the time-limit for the application to the European Court of Human Rights [“ECtHR“] was reduced from 6 months to 4 months, effective as of February 1, 2022. Accordingly, once remedies available as per domestic laws are exhausted, the application should be filed with the ECtHR within 4 months following the final court judgment. Having said that if the court decision was adopted before February 1, 2022, the ECtHR application based on this decision will still be subject to 6-month time-limit.

General Application Procedure to ECHR

Any natural person or legal entities, non-governmental organization or association, or de facto community without legal personality who claims to be a victim of a violation of the rights specified in the Convention and/or Amending Protocols – e.g., right to a fair trial, freedom of expression, and so on – by one of the ECHR parties can apply to the ECtHR with regard to such violation.

In order for the ECtHR not to declare the application inadmissible in the first examination, as a rule, ordinary domestic remedies must be exhausted, and the application must be filed within 4 months following the finalization date. The application is filed directly by the person who alleges the violation or their representative, to the ECtHR “Cour Européenne des Droits de L’Homme, Conseil de L’Europe, F-67075 Strasbourg-Cedex/FRANCE, Telephone: 33(0)3 88 41 20 18, Fax: 33 (0)3 88 41 27 30“.

In principle, ECtHR decisions cannot overturn or correct domestic court decisions. In general, the Court does not have the authority to intervene directly with the ECHR parties. In fact, Turkey, which is a party state pursuant to Article 90 of Act No. 2709, the Constitution of the Republic of Turkey, is obliged to implement the decisions of the ECtHR. States that do not comply with the decisions may face sanctions both at the Council of Europe and other international platforms. In fact, termination of the membership to the Council of Europe may be on the agenda.

In case the applicant is awarded a compensation, they should request compensation by sending a petition to the Human Rights Department of the Ministry of Justice. Then the relevant amount is deposited into the applicant’s bank account within 3 months.

By Zahide Altunbas Sancak, Partner, and Baris Ulker, Senior Associate, Guleryuz & Partners

On December 9, 2021, the Turkish Competition Authority (“Authority”) published its report entitled “Analysis Report on the Financial Technologies in Payment Services” (“Report”) which evaluates the effect of the use of financial technologies (“Fintech”) in the financial sector, the obstacles to innovation and competition in the relevant markets and the entry of big technology (“Big Tech”) companies (e.g., Facebook, Amazon, Google, Apple) into the market. The Report notes that Fintech includes: (i) innovative products and services that emerged in the financial sector as a result of the radical technological transformation, (ii) new entrants other than the incumbent players that offer these services, and (iii) Big Tech companies which started to offer financial services.

The Report states that its findings reflect the analysis of the information collected from 45 undertakings/undertaking associations and 7 public authorities. Accordingly, the stakeholders include banks, Fintech companies, technology companies, e-commerce marketplaces and various professional associations. It also notes that although the findings mainly relate to the Fintech revolution in payment services, they are also applicable to other Fintech developments such as crowd-funding and crypto-currency to the extent that they are relevant. 

The Report first explains the reasons for the emergence of Fintech and their effects on the financial sector, then evaluates the difficulties faced by the new players in promoting their products and services and the obstacles to innovation and competition in the market and subsequently analyses the potential consequences of the entry of Big Tech companies into the market.

The Reasons for the Emergence of Fintech

The Report provides that (i) digitalization and differentiated service expectation, (ii) the problems associated with the conventional banking system and the existence of an unbanked population, and (iii) the impact of the customer portfolio are the factors that contribute to the emergence and the development of Fintech.

Accordingly, the Report notes that technological developments related to the banking and payment services such as digital identity verification and electronic contracts provide flexibility to undertakings offering financial services and enhances innovative product creation and supply in the market. Moreover, Fintech companies generally provide limited and specialized services – which enable them to produce fast and appropriate solutions meeting different demands of the consumers. All in all, the relevant trend sets the digitalization and differentiated service expectation in the market.

Regarding the conventional banking system, the Report states that the previous 2007-2008 crisis in the banking sector has led to the tightening of the regulations and risk aversion by banks, and, as a result of this, the banking products and services on offer have remained limited. According to the Report, the unbanked population is due to those tight regulations put in place to protect consumers and avoid risks in order to maintain financial stability.

As for the impact of consumer portfolio, the Report notes that Big Tech companies can, and accordingly, have started to offer their existing services along with financial services as a one stop shop to their users.

The Report also reviews statistics on the development of Fintech and notes that as of the first five months of 2021, the majority (505 out of 589) of all Fintech startups established in Turkey are still active in the sector.

Obstacles to Fintech Development and Challenges For New Players

The Report finds that there are three main obstacles to Fintech development: (i) exclusionary actions of incumbent undertakings, (ii) problems associated with the regulations and (iii) problems stemming from the market structure.

Exclusionary Actions of Incumbent Undertakings

The Report notes that some strategies adopted by incumbent undertakings against Fintech companies may fall under the radar of competition law. These can be (i) unilateral conduct of an incumbent undertaking, (ii) anti-competitive agreements and concerted practices between incumbent firms and (iii) killer acquisitions.

Unilateral Actions

The Report notes that pursuant to the Article 6 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), certain actions of dominant incumbent undertakings may be considered as abuse of dominance.

Generally speaking, for an analysis under Article 6 of the Law No. 4054, the relevant market should be defined. Accordingly, the Report notes defining dynamic markets may be difficult, since considering, among others, that (i) new entrants can reach a significant market share in a short time with innovations, (ii) it is difficult to reveal the supply-demand relationship because of the network externalities and multi-sided market structure, (iii) there is not only “competition in the market” but also “competition for the market” as the developing technology leads to radical changes in the products and services that eventually change the market.  Accordingly, the Report underlines sensitivities with market definition and notes that a broader or a narrower market definition may lead to wrongful interventions.

Usually, subsequent to the determination of the relevant market a dominant position analysis is made. In this respect, the Report states that considering the number of institutions holding banking licenses in Turkey and the market shares of these institutions, no single or joint dominant position could be considered for the operation of the banking infrastructures. However, it also notes, by referring to the findings of the Authority for Consumers & Markets (in Netherlands), that each bank may be considered to hold a dominant position in terms of owning its own customer data since, for example, for the provision of the account information services to a customer, the bank where the relevant customer has her payment account will be in a dominant position as it would be the only undertaking holding the relevant account information needed for the provision of the relevant service. 

In this regard, the Report explains the commercial relationship between Fintech companies and incumbent undertakings in providing payment services and notes that although Fintech companies can provide services directly to customers, they are mostly positioned between banks and consumers/businesses in providing their services. Accordingly, Fintech companies need the existing banking infrastructure at some point in the provision of payment services and the infrastructure needed for Fintech companies may vary depending on the nature of the service provided. This creates a vertical relationship where Fintech companies, on the one hand, receive services from the banks that are active in the upstream market, and on the other hand, compete with these banks in the downstream market.

The Report notes that, therefore, similar to the telecommunication, retail and port services sectors, the undertakings that are active in the upstream market may abuse their dominant position by margin squeeze and refusal to supply.

Thereafter, the Report lists the conditions that need to be met for condemning certain unilateral conducts (i.e., refusal to deal and margin squeeze) of an undertaking in a dominant position by referring to the Guidelines on the Assessment of Abusive Conduct by Undertakings with Dominant Position.

In relation to the abuse of dominant position by margin squeeze, an undertaking that is active in vertically related markets and holds a dominant position in the upstream market sets the margin between the prices of the upstream and downstream products at a level that does not allow even an equally efficient competitor in the downstream market to trade profitably on a lasting basis. The undertaking which is dominant in the upstream market may engage in margin squeeze by increasing the price for the product it supplies in the upstream market or decreasing the price for the product it supplies in the downstream market or by doing both simultaneously. This enables the dominant undertaking to transfer its market power over the upstream product to the downstream market and leads to the restriction of competition. Moreover, refusal to supply, a typical example of abuse of a dominant position, can take the form of halting an ongoing supply relationship concerning the goods, services or inputs, or it can be in the form of refusing the demands of potential customers for supply.

Accordingly, as noted above, the Report notes that Fintech companies do not have the necessary infrastructures for their activities due to both regulatory rules and market dynamics, making it imperative for these companies to obtain the relevant services from banks to provide their own services. Therefore, the new entrant Fintech companies are in need of using the infrastructure of the banks. Hence, banks are active in both the upstream market and the downstream market. This creates the risk that the incumbent undertakings may exclude the Fintech companies via refusal to supply and margin squeeze. Indeed, in case the incumbent undertakings that dominate the upstream market refuse to supply to Fintech companies, it may result in the latter being largely excluded from the market. However, the Report also notes that, when analyzing the allegation of refusal to supply, it should not be overlooked that the incumbent undertaking may have a legitimate justification since the financial system is built on trust and the relevant Fintech company may not be meeting the security standards required by the incumbent undertaking to allow access to its infrastructure.

Consequently, the Report underlines that for the assessment of exclusionary behaviors under Article 6 of the Law No. 4054, the Turkish Competition Board (“Board”) conducts an effects-based analysis. The Report then states that, within the scope of such an analysis, factors such as the position of the dominant undertaking, barriers to entry and growth in the relevant market, economies of scale/scope, network effects, and the location of competitors, customers or suppliers should be taken into account.

Anti-Competitive Agreements and Concerted Practices

The Report analyzes the strategies developed by competitors through agreements or concerted practices with the aim of restricting competition in the relevant markets whilst reminding that such conducts are considered as restriction by object under Article 4 of the Law No. 4054. It assesses that with respect to payment services where associations of undertakings are active and coordination among competitors is relatively easy, it is necessary to closely examine whether the standards adopted by undertakings and the conditions imposed on Fintech companies are based on anti-competitive agreements or concerted practices. The Report also notes that the recent decisions of the competition authorities such as the German Competition Authority (“Bundeskartellamt”) show that the decisions of the associations of undertakings or the bilateral agreements between the undertakings are designed in a way to exclude new players in the market.

The Report highlights that the issue that may come to the fore in terms of Article 4 of the Law No. 4054 in the context of Fintech, would be the vertical agreements between undertakings that operate in financial markets. It notes that such vertical agreements which are common in the financial sector due to various business models used in the supply of payment services may include provisions that may make entry into the market more difficult, cause price rigidity or facilitate coordination between competitors, and ultimately restrict competition in the market.

The Report also provides that exclusionary actions taken jointly by incumbent undertakings against new players through vertical or horizontal relations, such as demanding unreasonable prices for the input provided to Fintech companies, unjustified disruption of services provided to Fintech companies, or boycotts against these companies are considered as agreements that restrict competition by object. In this regard, the incumbent undertakings may be held liable for engaging in a by-object restriction, without making any analysis on the effect of the conduct.

The Report also summarizes the Board’s decisions where it was found that certain conditions imposed in agreements between banks have the effect of excluding from the market certain undertakings such as other payment and e-money institutions. The Report finds that in the decisions concerning the exemption applications in the market, the Board makes an effects-based analysis. It evaluates that, in accordance with the effects-based approach embodied in the Board’s decisions, in order to assess the effects of the standards and conditions imposed by the incumbent undertakings on Fintech companies, it should be examined whether the relevant standards and conditions are objectively necessary. Accordingly, standardization or commercialization agreements concluded by the incumbent undertakings may increase the efficiency in the market in some cases, while in some cases these agreements include conditions that do not serve for a reasonable purpose or are of a discriminatory nature, which results in complicating the activities of new players in the market.

Killer Acquisitions

The report also remarks that there are frequent instances where incumbent undertakings chose to acquire Fintech companies rather than directly compete with them. As a result of the acquisition of the Fintech companies by the incumbent undertakings, the technologies developed by these Fintech companies may fail. Such acquisitions may lead to a significant impediment to effective competition as they restrict innovation and create exclusionary effects in the relevant market.

By referring to the practices of foreign competition authorities, such as United Kingdom Competition Authority (“Competition and Markets Authority” or “CMA”) the Report states that it is possible for the Board to intervene in such acquisitions under the “significant impediment to effective competition” doctrine pursuant to the Article 7 of the Law No. 4054.  In particular, the CMA argues that an interventionist approach should be applied to acquisitions that are likely to result in consequences such as ending the activities of the acquired undertaking and preventing potential innovation.

The Report states that, as a reflection of the interventionist approach regarding transactions in Turkey, in 2020, Article 7 of the Law No. 4054 has been amended so that not only the transactions leading to the creation or strengthening of dominant position but also the transactions that significantly impede effective competition can be prohibited. Therefore, the acquisitions of Fintech companies will also be examined in terms of whether they cause a significant impediment to effective competition by restricting innovation.

Regulatory Framework

Regulatory Interventions against Exclusionary Actions

The Report remarks that it is important to impose general and inclusive ex-ante rules that prevent exclusionary actions as opposed to relying on existing competition law instruments in this area since, among others, (i) for competition law interventions, certain conditions must be met and it is not easy to determine whether these conditions are met in every case, (ii) competition law interventions may only have an effect on the individual case and (iii) the competition law interventions are used ex-post (i.e., after the infringement has been made).

In this regard, the Report notes that many countries implement regulations that encourage open banking or make open banking even mandatory. According to the Report, open banking, in a broad sense, means that access to different banking infrastructures and customer data from banks are granted to players in the downstream market so that these players can provide value-added services in the downstream market.

To that end, the Report explains the regulations regarding open banking in different countries and Turkey, and states that the developments in Turkey indicate that the scope and depth of applications for direct access of non-bank financial institutions to payment systems will increase. The Report also remarks that the Fintech companies’ access to various infrastructures and data pools under the uniform banking standards as determined by the regulatory authorities will contribute to the development of competition in the market by reducing the operational costs of Fintech companies and enabling interoperability between different systems.

The Problems Associated with the Regulatory Framework

According to the Report, the problems associated with the conventional regulatory framework that hinders the development of Fintech may be grouped under three main headings: (i) the lack of rules governing the new products and services, (ii) the rules not being suitable for new types of services and products, and (iii) the rules being too restrictive and costly for Fintech companies. 

With respect to the lack of regulation, the Report states that most new products and services offered by Fintech companies are out of the scope of the rules designed to govern the conventional banking services. This situation makes it difficult for the incumbent undertakings, which bear the cost of complying with the regulatory rules, to compete in the downstream market with new players operating on different business models without being subject to the regulatory rules. Nevertheless, the operations of Fintech companies also create some risks about consumer protection and financial stability which calls for regulation. Following that, the Report points out that, in Turkey, the activities of payment institutions and electronic money institutions as non-bank financial institutions have been regulated and rules protecting consumers and financial stability were designed specific to these activities.

Regarding the suitability of the rules to new technologies, the Report emphasizes that the rules should be updated so that they do not prevent the Fintech companies from offering new products and services, and notes that new rules should be adopted to enable the use of blockchain and cloud technologies in the financial sector in Turkey.

Finally, the Report underlines that heavy and intense regulatory rules ultimately create barriers to entry into financial markets, particularly in the payment services area. Indeed, the Report states that Fintech companies that have limited activities and thus create lower risks on the financial stability and the economy of the countries should not bear the cost of the rules designed to avoid the huge macroeconomic risks stemming from the operation of banks that are too big to fail.

Against this background, recognizing the delicate balance between promoting competition and innovation in the sector and ensuring financial stability and consumer protection, the Report suggests that there should be an asymmetric regulatory framework considering the risks posed by different undertakings on the financial sector so that new players can compete with the incumbent undertakings under fair conditions. For example, the Report states that Fintech companies providing payment services should have direct access to the payment settlement system under a licensing regime which is not as rigid as the regime applying to the banks, so that they would not be dependent on banks for the access to the settlement system.

The Problems Stemming from the Market Dynamics

According to the Report, Fintech companies face certain entry barriers arising from market dynamics. Firstly, Fintech companies need to gain the consumer’s trust in order to compete with incumbent banks that have strong ties with consumers. Second, there are barriers arising from the market structure. Accordingly, since there is no mechanism whereby the data about the sector can be pooled and shared with the possible investors, the cost of capital for Fintech companies is high. Also, one of the possible obstacles that Fintech companies encounter arises from the business models that utilize network effects. For example, in payment systems where the settlement system is not used and the payments are made from the bank account of the user, both the payer and the payee must be registered in the payment system. Hence, the increase in the number of registered payees increases the network effects, which creates a barrier to entry for Fintech companies. Finally, incumbent undertakings may provide various services that commonly share their main costs and this may put them in an advantageous position in reaching the economies of scale, which may also create an entry barrier. The lack of interoperability among devices and different payment platforms and the fact that financial institutions other than banks do not own the information about the financial status of the customers may be listed as other entry barriers.

The Entry of Big Tech Companies into the Financial Sector

In the final part, the Report discusses the potential effects of the entry of Big Tech companies  into the financial sector. It first notes that, while entering into the market, Big Tech companies may benefit from the advantages stemming from their loyal customer portfolio, easy access to capital, the customer data they hold, economies of scale and scope, brand recognition and the lobbying power. Indeed, they will be able to provide financial services at low costs to their current customer portfolio in addition to existing services by utilizing the data they hold.

The Report then analyzes Super Apps offered by Big Tech companies which provide multiple services (e.g., from financial services to ordering meals) and collects consumer data in relation to all services offered through the relevant app. The Report notes that the entry of Big Tech companies may have a more serious effect on competition in the financial sector given their data advantages. On the other hand, the Report also remarks that Big Tech companies have disadvantages over Fintech companies as consumers have doubts about the extent their privacy is protected by the former.

Having recognized the pro-competitive effect of Big-Tech companies’ entry into the market (i.e., the end of the oligopolistic structure in the payment services), the Report discusses the potential exclusionary conduct of such companies in the market. In this respect, the Report states that in case where the Big Tech company provides the multi-sided platform as the online marketplace for the supply of Fintech services, it may (i) provide the financial services of different undertakings to the users, (ii) become a gatekeeper, for example, in the provision of payment services through its own platform,  (iii) enter into the markets concerning the most profitable service of the incumbent undertakings and (iv) leverage its market power in the provision of marketplace to the provision of the relevant financial service.

The Report’s Final Recommendations

The Report concludes and recommends, inter alia, the following;

1. The common competitive concern regarding Fintech companies is the their possible exclusion from the market by the incumbent undertakings’ refusal to grant access to existing infrastructures, hence the rules should be designed in order to prevent this. Also, the rules should be differentiated for different players so that Fintech companies would not bear the costs that would prevent them from entering into market.
2. The intervention by competition authorities should address atypical problems in the markets arising as a result of the effect of digitalization (e.g., holding data). Accordingly, since each data set is unique and a customer’s data can be considered as key for providing service to the relevant customer, it may be concluded that the undertaking holding the relevant data is in a dominant position.
3. Regulatory sandboxes may be used where new Fintech products and services can be tested in a limited market without being subject to regulatory rules so that the regulator may grasp a better understanding for the optimal regulation in relation to these products.
4. To encourage the development of Fintech companies, there may be certain state aids and tax incentives. Moreover, a public data repository may be established which may help investors in making their decisions about whether to invest in Fintech companies.
5. Public authorities should cooperate to establish a holistic policy in relation to Fintech.

 Conclusion

The Authority’s Report shows its willingness (i) to take active part in encouraging the development of Fintech in Turkey and (ii) to intervene in any practices that may exclude the Fintech companies from the market.

Accordingly, the Authority identifies possible practices that incumbent undertakings may engage for excluding Fintech companies from the market and explains the competition law framework that will provide a basis for intervention in such cases. Moreover, it discusses how the current regulation may create an obstacle to Fintech Development and explains possible solutions by providing examples for a regulatory design that would be fit for purpose. Finally, it analyzes the possible consequences of Big Tech companies’ entry into the financial services market. It finds that such entries may be more effective than the entries of small Fintech companies in increasing competition in the relevant markets but, at the same time, create additional competition law concerns as Big Tech companies may leverage their market power in the markets for provision of their own platforms to the markets for the provision of financial services.

By Gonenc Gurkaynak, Partner, Dilara Yesilyaprak, Senior Associate, Zeynep Ayata Aydogan, Associate, and Ersagun Berkay Kiltan, Associate, ELIG Gürkaynak Attorneys-at-Law

BTS & Partners has advised Revo Capital on co-leading a USD 11 million seed round for Midas, alongside Spark Capital and Earlybird Venture Capital with the participation of Nigel Morris. Reportedly, White & Case advised Midas.

Midas is an investing app that lets retail investors trade US and Turkish stocks via a mobile experience. According to BTS & Partners, “aspiring to become a comprehensive wealth management platform that makes investing available to the masses in emerging markets, Midas also offers a first-in-class trading infrastructure to other companies – powering an entire industry.”

BTS & Partners’ team was led by Partner Okan Arican and included Senior Associate Muge Minareci.

Gide’s affiliated firm in Turkey, Ozdirekcan Dundar Senocak, has advised Schindler Turkeli on the acquisition of 100% of the shares of OM Elektrik Makina Sanayi ve Ticaret A.S.

The closing took place after obtaining approval from the Turkish Competition Authority.

Schindler Turkeli is an affiliate of the Swiss multinational Schindler Group, which manufactures escalators, moving walkways, and elevators.

OM Elektrik Makina is a Turkish company manufacturing and commercializing elevators.

According to Gide, “this acquisition will allow Schindler Turkeli to operate with its own domestic production facility and to produce assemble specific elevator (i.e. package elevator) components in Turkey.”

ODSA’s team included Partner Arpat Senocak and Senior Associates Pinar Dilek and Iklim Aytekin.

Gide did not reply to our inquiry on the matter.

“Regulation on the Principles of the Asset, Right and Receivable Inquiry on the National Judiciary Informatics System” [“Regulation”] was published in the Official Gazette dated January 22, 2022 and entered into force on the same date. The Regulation basically sets forth the procedures and principles regarding the inquiry of the debtor’s assets, rights and receivables via the information systems integrated into the National Judiciary Informatics System [the so-called “UYAP“].

In fact, asset, right and receivable inquiry and attachment request through UYAP was possible pursuant to the amendments made to the Execution and Bankruptcy Law No.2004 within the scope of the 3rd Judicial Package dated July 22, 2020. Therefore, the new Regulation basically eliminated hesitations regarding the current implementation and the functioning of the system.

Who Can Make the Inquiry?

Inquiry can mainly be made by the lawyers registered as the creditor’s attorney in the relevant enforcement file at the UYAP. Although natural person or legal entity creditors can also make inquiries through the UYAP Citizen Portal as per the Regulation, the Citizen Portal’s infrastructure has yet to be developed.

What Kind of Information Can Be Obtained?

Information on the debtor’s assets, rights, or receivables found in the integrated databases of public institutions and organizations, credit institutions and financial institutions defined in the Banking Law No. 5411, and institutions and organizations that keep records of a similar nature can be obtained within the scope of the UYAP inquiry.

In case an asset, right, or receivable belonging to the debtor is detected, characteristics of the asset, right, or receivable are disclosed on the system. If there aren’t any asset, right, or receivable detected within the scope of the inquiry, then the nonexistence is indicated in the inquiry report.

What Kind of Assets, Rights, or Receivables Can Be Subject to Inquiry?

Vehicles, Revenue Administration registrations, enforcement files, credit and financial institutions’ registrations, postal checks, Social Security Institution registrations, and real estates are among the assets, rights, and receivables that can be inquired within the scope of the Regulation. The information provided only relates to the debtor’s assets, and save for specific characteristics of the assets, rights, and receivables, further information about third parties associated with the debtor is not disclosed.

While the scope of the inquiry is, for the time being, limited to the assets, rights, and receivables specified above, it is possible for other institutions and organizations that keep similar data to integrate with UYAP in the upcoming period. In case of such integration with other institutions and organizations, the Regulation will automatically be applied to the inquiry procedures to be carried out in the databases of these institutions and organizations as well.

Is the Inquiry a Paid Service?

The cost of the inquiry on the debtor’s assets, rights, or receivables costs 0,50₺ [per inquiry]. This amount is increased each year at the rate of revaluation determined and announced annually. On the other hand, the Ministry of Justice announced that no fee will be charged until January 1, 2023, for the inquiries. As of that date, only inquiries to be carried out by public administrations within the purview of general government, as well as those made up to five times a day on the same file by a creditor will not be subject to a fee.

Finally, it should be noted that inquiry fees cannot be charged to the debtor as an execution expense.

By M. Tarik Guleryuz, Partner, and I.Selin Nacar, Associate, Guleryuz & Partners