Edition 10: 16 November 2015
Editorial Team:
Dr. E. Seyfi Moroğlu, LL.M., Işık Özdoğan, LL.M. and Bora İkiler, LL.M.
Amendments to Regulation on Procedures and Principles For General Assembly Meetings at Joint Stock Companies

The Regulation on Procedures and Principles of Joint Stock Companies’ General Assembly Meetings and Ministry of Customs and Trade Representatives Who Should Be Present At These Meetings (“Regulation”) was published in Official Gazette numbered 28481 on 28 November 2012. Certain aspects of the Regulation have been changed by an amendment regulation (“Amendment Regulation”) published in Official Gazette number 29515 on 27 October 2015.

The Amendment Regulation expand the scope of duties for chairmen of joint stock company general assembly meetings, as well as change eligibility criteria for becoming a Ministry of Customs and Trade representative.

Key amendments introduced by the Regulation include:

– The meeting chairman must determine whether the documents showing entitlement to attend the meeting comply with legislative requirements before signing the attendance sheet.

– The Ministry of Customs and Trade (“Ministry”) holds an examination to qualify people to act as Ministry representatives. Prior to the examination, the Ministry will provide a training for the test takers. After completing this training, participants will receive a written and oral examination from the Ministry.

– To maintain proficiency of Ministry representatives, the Ministry may provide training, as well as undertake written and/or oral examinations from time to time.

– Persons who fail the Ministry’s examination will not be assigned as Ministry representatives. Persons who fail the entry or proficiency exam three times in a row will not be allowed to take any further examinations for this purpose.

Please see this link for full text of the Regulation (only available in Turkish).

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Regulation Published For Measurement and Evaluation of Capital Adequacy of Banks

The Regulation on Measurement and Evaluation of Capital Adequacy of Banks was published in Official Gazette number 29511 on 23 October 2015 (“Regulation”). The Regulation was prepared by the Banking Regulation and Supervision Agency and enters into effect on 31 March 2016. The Regulation outlines principles and procedures to ensure banks hold sufficient equity to balance the damage related to probable risks. It represents a more compatible regulatory structure with the Basel standards than previously existed in Turkey.

The Basel Committee on Banking Supervision (“Basel Committee”) frames general bank supervision and regulation worldwide. The Communiqué introduces amendments to align Turkish regulation with the standardized approach introduced in 2012 by the Basel Committee’s Regulatory Consistency Assessment Programme, particularly the Third Basel Accord (Basel III). Basel III was issued to prevent insufficiency of liquidity caused by risky loans. Member states are expected to harmonize domestic law with Basel III provisions by 31 March 2019.

The Regulation was prepared based on Articles 43, 45, 47 and 93 of Banking Law numbered 5411. These articles regulate maintenance of equity, capital adequacy, as well as excess limits and rates related to equity.

Significant matters stipulated by the Regulation include:

– Determining amounts based on credit risk.

– Determining amounts based on market risk.

– Determining amounts based on operational risk.

– Ratios for capital adequacy.

The Regulation on the Measurement and Evaluation of Capital Adequacy of Banks (Official Gazette number 28337, 28 June 2012) will be repealed when the new Regulation enters into force on 31 March 2016. Please see this link for full text of the new Regulation (only available in Turkish).

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Communiqué Published on Risk Management Disclosures By Banks

The Communiqué on Risk Management Disclosure By Banks was published in Official Gazette number 29511 on 23 October 2015 (“Communiqué”), coming in force on 31 March 2016. The Communiqué outlines procedures and principles of consolidated and unconsolidated risk management disclosure to be made by banks. It also includes obligatory tables and templates in this regard. It represents a more compatible regulatory structure with the Basel standards than previously existed in Turkey.

The Basel Committee on Banking Supervision (“Basel Committee”) frames general bank supervision and regulation worldwide. The Communiqué introduces amendments to align Turkish regulation with the standardized approach introduced in 2012 by the Basel Committee’s Regulatory Consistency Assessment Programme, particularly the Third Basel Accord (Basel III). Basel III was issued to prevent insufficiency of liquidity caused by risky loans. Member states are expected to harmonize domestic law with Basel III provisions by 31 March 2019.

According to the Communique, any information regarding risk management must be included in financial reports as a separate section. Disclosures must be easily accessible and must enable measurement and assessment of information given by banks. Furthermore, banks must keep an online disclosure database, showing five years’ worth of records. The online database must be available on a bank’s website from 31 March 2016 onward.

The Communiqué also includes format and frequency of report tables and report templates for disclosures (Attachment No: 1). These disclosure reports are subject to internal auditing and examination as financial reports.

Banks can refuse to share information if risk management disclosures contain information that could be regarded as business secrets. In these circumstances, banks should state in an additional part of the disclosure report that they have not disclosed the relevant information and the reasons for this non-disclosure.

The Communiqué outlines principles for transparent and good quality risk management disclosures. Accordingly, disclosures must be:

– Comprehensive.

– In due course and consistent.

– Comparable with other banks.

– Comprehensible and accessible. Important information should be highlighted and complex subjects must be explained in plain language.

If risk exposure is insignificant or tables and templates are incomprehensible, banks may choose to not to reveal such information, provided they explain this in the additional information part of the disclosure report.

Disclosures made within the scope of the Communique are subject to independent audit.

Please see this link for the full text of the Communiqué (only available in Turkish).

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Communiqué Published Regarding Calculation of Risk-Weighted Amounts For Bank Securitization

The Communiqué on Calculation of Risk-Weighted Amounts Concerning Securitization (“Communiqué”) was published in the Official Gazette number 29511 on 23 October 2015. It was published by the Banking Regulation and Supervision Agency and will enter into effect on 31 March 2016. The Communiqué outlines procedures and principles for calculating risk-weighted amounts arising from bank securitization positions. The Communiqué introduces more detailed securitization procedures and calculation methods. It represents a more compatible regulatory structure with the Basel standards than previously existed in Turkey.

The Basel Committee on Banking Supervision (“Basel Committee”) frames general bank supervision and regulation worldwide. The Communiqué introduces amendments to align Turkish regulation with the standardized approach introduced in 2012 by the Basel Committee’s Regulatory Consistency Assessment Programme, particularly the Third Basel Accord (Basel III). Basel III was issued to prevent insufficiency of liquidity caused by risky loans. Member states are expected to harmonize domestic law with Basel III provisions by 31 March 2019.

The Communiqué addresses principles for securitization, the content of the banks’ liability for discretionary funds, as well as calculation principles for risk-weighted amounts and credit risk transfers.

The Communiqué introduces the following provisions and changes:

– Definition for the scope of assets which can be subject to securitization. The new definition includes credits, undertakings, asset based securities, mortgage based securities, debt instruments and equity securities and similar assets.

– Rules and requirements for implicit support by banks.

– Detailed procedures and rules which apply if a call-back option exists in a securitization.

– Increased detail for principles regarding credit scores made by credit scoring agencies, scoring conditions, usage principles and credit quality matchings for credit scores.

– Increased details for provisions regarding calculating risk-weighted amounts.

– Banks which establish securitization must now “tread carefully” when issuing credits for the purpose of securitization. The Communiqué requires such banks to act as if they will monitor the credit in their own balance sheets. Banks must take into account the Banking Regulatory and Supervisory Authority’s Manual on Credit Management by the Banks when approving, renewing and re-structuring credits to that effect.

– New rules and principles for credit risk reduction techniques concerning securitization positions.

The Communiqué on Calculation of Risk-Weighted Amounts Concerning Securitization number 28337 will be repealed when the Communiqué enters into effect on 31 March 2016. Please see this link for full text of the new Communiqué (only available in Turkish).

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Communiqué Published For Risk Assessment Models Used By Banks

The Communiqué on Calculating Market Risks Using Risk Assessment Models and Evaluating Risk Assessment Models (“Communiqué”) was published in Official Gazette number 29511 on 23 October 2015. It was issued by the Banking Regulation and Supervision Agency (“Agency”) and enters into effect on 31 March 2016. The Communiqué outlines principles, procedures and standards for risk assessment models for banks when calculating and assessing market risks. It represents a more compatible regulatory structure with the Basel standards than previously existed in Turkey.

The Basel Committee on Banking Supervision (“Basel Committee”) frames general bank supervision and regulation worldwide. The Communiqué introduces amendments to align Turkish regulation with the standardized approach introduced in 2012 by the Basel Committee’s Regulatory Consistency Assessment Programme, particularly the Third Basel Accord (Basel III). Basel III was developed to prevent insufficiency of liquidity caused by risky loans. Member states, including Turkey, are expected to harmonize domestic laws with Basel III provisions by 31 March 2019.

Under the Communiqué, banks must obtain the Agency’s consent to calculate general market risks, specific risks, currency risks and commodity risks via a method other than the standard risk assessment method. Permission may be granted as a permit which includes all risk types, or a partial permit which applies only to certain risk types (adopting the standard method for risk types not covered by the partial permit).

The Communiqué addresses use of market risk assessment models. It includes minimum requirements for banks to be allowed to use certain market risk assessment models.

The Communiqué also addresses measurement of specific risks against exposed value and internal validation standards. These include principles, comprehensive risk capital requirements and internal validation standards.

The Communiqué on Calculating Market Risks Using Risk Assessment Models and Evaluating Risk Assessment Models (Official Gazette number 28337, 28 June 2012) will be repealed when the new Regulation enters into force on 31 March 2016. Please see this link for the full text of the new Communiqué (only available in Turkish).

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Communiqué Allows Unilaterally Termination of Agreements For Derivative Financial Instruments in Some Circumstances

The Communiqué on Amendments to the Communiqué on Covered Bonds (III-59.1) was published in Official Gazette number 29508 on 20 October 2015 (“Communiqué”). It was issued by the Capital Markets Board and enters into effect on the same day. The Communiqué enables contracting parties to unilaterally terminate agreements about derivative financial instruments in certain circumstances.

The Communiqué amends principles relating to derivative instruments (Article 11, Communiqué on Covered Bonds (III-59.1), Official Gazette number 28889, 21 January 2014).

The amendments enable contracting parties to include a provision in agreements regarding derivative financial instruments which allows for unilateral termination of the agreement under certain conditions. Accordingly, the Communiqué allows parties to include a clause which allows unilateral termination if:

– The issuer fails to perform its liabilities totally or partially and the total liabilities exceed the assets’ total value, including the derivative instrument.

– The agreement becomes impossible and contrary to law within the context of relevant legislation or significant amendments to legislation regarding contracted principles.

– Early redemption of covered bonds occurs.

– The agreement is not registered in the cover register, or is removed from the cover register for violating the agreement’s terms and conditions.

The Communiqué also allows parties to agree to add a unilateral termination clause into an agreement which addresses similar circumstances to those outlined above, provided the Board’s consent is received.

Please see this link for full text of the Communiqué (only available in Turkish).

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Tobacco and Alcohol Prohibited From New Year’s Baskets By Tobacco and Alcohol Market Regularity Authority

A recent Board Resolution by the Tobacco and Alcohol Market Regularity Authority prohibits retail stores from including alcoholic beverages and tobacco products in “new year’s baskets”. The Board Resolution was published Official Gazette number 29523 on 21 October 2015. It was made based on Article 19 and 20 of the Regulation on Procedures and Principles Regarding Tobacco and Alcohol Sale and Supply numbered 27808 (“Regulation”), dated 7 January 2011.

Article 19 of the Regulation prohibits advertisement and publicity of tobacco products. The article states that tobacco products must not be the subject of reward, betting or promotion, nor be distributed free of charge through any incentive, sales sample, relief, lottery or similar system.

Article 20 of the Regulation prohibits advertisement and publicity of alcoholic beverages. The article strictly forbids consumer advertisement and publicity, although allows informative publicity about product characteristics, provided it does not promote or encourage. Therefore, campaigns, promotions or activities which encourage access or sale of alcoholic beverages are prohibited. Similarly, Article 20 also prohibits distribution of alcoholic beverages free of charge as incentives, gifts, sample sales, or promotions.

Please see this link for the full text of the Board Resolution (only available in Turkish).

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Constitutional Court Rules on Right to Receive a Fair Trial

The Constitutional Court recently considered an applicant’s right to receive a fair trial. The court held this constitutional right to receive a fair trial was violated in these circumstances because the court of first instance gave a decision regarding cancellation of an enforcement proceeding, contrary to mandatory rules and without jurisdiction over the dispute.

The applicant initiated an enforcement proceeding, receiving a judgement for payment of the applicant’s attorney’s fee. The debtor of the proceeding brought an action for annulment of enforcement proceeding before Labor Court. The court held that the action had the characteristic of an action for annulment of objection. It awarded the debtor 25% compensation for denegation of enforcement and nullified the objection.

The Constitutional Court held that the applicant’s right to receive a fair trial had been violated, particularly the right to receive a justified decision.

According to Article 16 of Law numbered 2004, it is clear that the annulment of the execution order must be claimed before the Enforcement Court. No time limits apply to such claims. In this case, despite the court’s statement that the action has the characteristic of an action for annulment of objection, the Labor Court acted as an Enforcement Court, ruling on a claim regarding enforcement proceedings.

In addition, the Labor Court awarded the debtor 25% compensation for denegation of enforcement. Compensation for denegation of enforcement can only be awarded if the action is accepted for annulment of objection against enforcement proceeding without judgment. It is not possible to award compensation for denegation of enforcement while ruling on the nullification of the objection.

During the trial, the applicant’s claim must be made before the Enforcement Court. However, the Labor Court ruled on a claim regarding an enforcement proceedings, without jurisdiction over the subject matter. Even if the action is deemed to be an action for annulment of objection, the annulment can only be claimed by a creditor, not a debtor. In addition, compensation for denegation of enforcement at the rate of more than 20% must be provided together with justification from the court. The court did not provide the justification in these circumstances and did not consider the substantial objections about the case.

Accordingly, the Constitutional Court held the applicant’s right to fair trial were violated. However, the court rejected the applicant’s claim about violation of the right to receive due process before an objective court, due to lack of legal basis.

The full text of the Constitutional Court’s decision can be found at this link (only available in Turkish).

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Supreme Court Rules on Second-Hand Sale and Licensing of Computer Software

The Turkish Supreme Court recently held that irrespective of how they are released to the market, second-hand software sales do not constitute copyright infringement under the Intellectual and Artistic Works Law numbered 5846 (“Law”), provided the software was legitimately obtained by the first user.

In the dispute at hand, Party X produces software, licensing this to other parties (OEM License). Party Y purchases a software CD from one of Party X’s licensees. While granting licenses, Party X provides authenticity stickers which bear the licensee’s name. Party Y attaches the sticker to the computer tower which the software is used on. At a later time, Party Y resells the software (including user guides). In other words, Party Y becomes a second-hand salesman and acts similar to a license grantor for Party X’s software.

In these circumstances, Party X alleged piracy and that Party Y had obtained the software illegally. Party X filed a criminal complaint based on this allegation. During investigations, software and computers were seized from Party Y. Party Y initiated a civil action against Party X (the case at hand), claiming material and immaterial damages for the seizures. Party Y also claimed that second-hand sale of computer software, which was legally obtained by the primary user, does not infringe Party X’s rights arising from laws or agreements.

Party X claimed the license agreement prohibits second-hand sale of the software. It also claimed that under the agreement, transferring the software to third parties would only be legal if the software is directly transferred as a whole with the device the software was sold for.

The First Instance Court held that the license provision which prohibits separate transfer of the original software apart from the computer is not aimed at copyright protection. Rather, the court held that this provision is only intended to regulate the software’s commercialization and control the second-hand market.

The First Instance Court ruled that Party X is technically capable of checking which computers the software is loaded on and which computer the software was first uploaded onto. The Court noted that Party X could not prove the software is also used by other users on different devices. On this basis, the Court held that second-hand sale of the software does not infringe Party X’s copyrights.

Party X appealed the First Instance Court’s decision to the Supreme Court. However, the Supreme Court approved the lower court’s decision. The Supreme Court referred specifically to Article 23(2) of the Law, which states: “resale of certain copies after their first sales or dissemination is made within the borders of the country by the transfer of their property by the owner of the right upon the utilization of the right to disseminate does not violate the dissemination right granted to the owner of the work, provided that the rights to lease and lend to the public are reserved.”

The Supreme Court stated that the article is a mandatory rule. It held that where such regulation exists, even if a license agreement provision prohibits second-hand sale of computer programs, this will not be considered to be copyright infringement.

(Case reference: Yarg. 11. HD. 30.06.2015, 2014/17376 E., 2015/8772 K.)

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