Resolution No. 36/1043 on the Implementation of the Capital Markets Board Communiqué Serial: V, No: 34

Resolution No. 36/1043, dated July 11, 2024, outlines the implementation of the Capital Markets Board (“CMB”) Communiqué Serial: V, No: 34, focusing on capital and capital adequacy principles for financial intermediary institutions. This resolution repeals the previous decision dated June 1, 2016, numbered 18/618, introducing updated regulations for maintaining capital adequacy and shareholders’ equity in intermediary institutions.

Key Provisions

Equity Requirements                                                                               

1. Shareholders’ Equity Below Required Amount:
   • 75% or More: If an intermediary institution’s equity falls to 75% or more of the required amount for the first time within a year, they are given 20 business days to rectify the deficiency. If it occurs a second time within the same year, the period is reduced to 10 business days.
   • Less Than 75%: If the equity drops below 75% of the required amount, the institution is given 10 business days regardless of whether it is the first or second occurrence within a year. If the deficiency is not rectified within this period or if it happens a third time, the intermediary institutions activities are temporarily suspended without additional grace periods.
2. Paid-in or Issued Capital Requirements:
   • 75% or More: Similar to shareholders’ equity, if the paid-in or issued capital falls to 75% or more of the stipulated amount, the institution has 20 business days to address the shortfall.
   • Less Than 75%: If the capital is less than 75% of the required amount, a 10 business day period is provided. Failure to correct this within the given time results in the temporary suspension of activities without further extensions.

Capital Adequacy Floor

The resolution stipulates that the minimum shareholders’ equity, paid-in or issued capital must not fall below 60% of the following specified amounts:

• Narrowly Authorised Intermediary Institutions: TRY 2,000,000
• Partially Authorised Intermediary Institutions: TRY 10,000,000
• Extended Authorised Intermediary Institutions: TRY 25,000,000

Intermediary institutions can use letters of guarantee or cash blockage as per Article 32 of the Communiqué to meet these requirements.

Additional Measures and Compliance

1. Risk Allowance and Operating Expenses: The capital adequacy floors must also not be less than any risk allowance and operating expenses incurred in the three months prior to the valuation day.
2. Letter of Guarantee: If the obligation is not met within the specified period, intermediary institutions may deposit a letter of guarantee with İstanbul Takas ve Saklama Bankası A.Ş. within certain time frames to avoid being considered in breach:
   • 30 Business Days Period: 4 business days to deposit the guarantee.
   • 20 Business Days Period: 3 business days to deposit the guarantee.
   • 10 Business Days Period: 2 business days to deposit the guarantee.

Depositing the letter of guarantee within these deadlines ensures compliance with shareholders’ equity and paid-in or issued capital requirements.

1. Multiple Obligations: If two or more obligations (minimum shareholders’ equity, capital adequacy floor, paid-in or issued capital, liquidity obligations) are not met simultaneously, the deposited letter of guarantee or cash blockage will be considered in addressing all breaches. If the sum of the guarantee or blockage amount and current assets cover short-term liabilities, the liquidity obligation will be deemed fulfilled without additional actions.
2. Time Periods: If multiple obligations are unmet, the shorter prescribed time period applies. In case of subsequent statements requiring different periods, the shorter period will be enforced, but it will not exceed the first period given.

Transitional Provisions

Intermediary Institutions that failed to meet obligations before the effective date of this resolution can rectify deficiencies by depositing a letter of guarantee or by other means within specified periods. These rectifications will not be considered breaches.

Conclusion

Resolution No. 36/1043 provides a structured framework for financial intermediary institutions to maintain adequate capital and comply with the CMB Communiqué. It introduces specific timelines and measures to address deficiencies in shareholders’ equity and paid-in or issued capital, ensuring robust financial practices within the sector. By allowing the use of letters of guarantee and cash blockage, the resolution offers flexibility while maintaining strict compliance standards.