Turkey Redrafts Crypto Legislation to Exit FATF ‘Grey List’

Turkey is redrafting its cryptocurrency legislation. The move is designed to satisfy the Financial Action Task Force (FATF) and secure its exit from the agency’s ‘grey list,’ a classification that has troubled the nation since 2021.

A recent FATF evaluation found Turkey in compliance with 39 of its 40 regulatory criteria. Finance Minister Mehmet Şimşek has announced that new legislation focusing on the hitherto neglected crypto-assets will be submitted to the Turkish Parliament imminently.

“Crypto-assets are the final frontier for us. Our existing legal framework has not adequately covered them, and we’re committed to fixing that,” said Şimşek.

This political will to meet FATF standards comes at a crucial time when Turkey is undergoing significant economic fluctuations, including an annual inflation rate hitting 61.53% in September.

Crypto: The Achilles’ Heel in Turkey’s Financial Compliance

The one area where Turkey stumbled in FATF’s evaluation was crypto-assets, a domain notorious for its potential to enable money laundering and terrorist financing. To address this, the Turkish Finance Ministry plans comprehensive studies concerning crypto asset service providers, taxation, and the classification of virtual assets.

“In the eyes of the international community, crypto-assets are increasingly viewed as a litmus test for a country’s financial security protocols. Turkey recognizes this and is acting decisively,” commented Timothy Ash, a senior strategist at BlueBay Asset Management.

Turkey’s central bank has already ramped its policy rate by 500 basis points to 35% in an aggressive bid to tame inflation. This marks a significant policy shift from President Recep Tayyip Erdoğan‘s earlier aversion to high rates, contributing to the lira depreciating by almost 70% over the past two years.

With the bank signaling further rate hikes, it’s evident that Turkey is pulling in its endeavor to stabilize its economy and rebuild its international standing.

However, as Minister Şimşek noted, Turkey’s FATF status isn’t purely about meeting technical standards; it’s also a matter of politics. “After this law is passed, there should be no reason for Turkey to remain on that grey list unless other political considerations come into play,” he cautioned.

Turkey’s FATF gray list status has led to economic repercussions and reputational damage on the world stage. The country’s new approach towards crypto regulation may be its ticket to financial reformation and international reacceptance.

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