On 29th of December 2021, the Regulation on the Operation Principles of Digital Banks and Service Model Banking ("Regulation") was published in the Official Gazette and the purpose of the regulation is to determine the procedures and principles regarding the activities of branchless banks that only provide services through electronic banking services distribution channels and the provision of banking services to financial technology companies and other businesses as a service model.

Digital Banking Establishment and Operating Conditions

The Regulation is a guidance for banks that provide services as a branchless bank and have no physical offices and set forth the principles for digital banks as well as banking services.

1- Digital banks must have a paid-in capital of at least 1 billion Turkish Lira. This amount may be increased by the Banking Regulatory and Supervisory ("BRSA"). Upon the application of digital banks, which have increased the required minimum paid-in capital amount to 2 billion 500 million TL, the BRSA will be able to remove the operational restrictions for digital banks that it believes can manage their risks in the new situation, either completely or gradually within the framework of a transition plan it deems appropriate.

2- Digital banks cannot open physical offices other than their headquarters and cannot use their headquarters as a physical office.

3- The incorporation and operating license are applicable as to Turkish banks requirements.

4- Digital banks can only engage with clients who are only financial consumers and small and medium-sized enterprises. However, may extend foreign currency loans to large-sized enterprises.

5- The Regulations states that the service continuity percentage cannot be lower than 99.8% and obliged to share their percentage values on the home page of their websites.

6- Possible unsecured cash loans to a customer of digital banks will not exceed 4 times of their monthly average net income from the related growth and digitally confirmed data, and 10 thousand Turkish Liras if their monthly average net income cannot be determined. The BRSA shall be authorised to change the rate and change specified in this provision.

7- Within the scope of the regulation, provisions regarding service model banking were also determined. Accordingly, the service bank will be able to provide service model banking services only to domestic interface providers and only within the framework of its own operating permits. Banks will not be interface providers.

The Regulation came into effect on 1st of January 2022 and sets out the principles applicable to branchless banking as well as the service model which enables a new era to finance sector in Turkey. If you have any questions or inquiries in regard to the aforementioned subjects please feel free to email info@guden.av.tr.
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