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Regulation Article 5: Obliged Entities to Establish Compliance Programs

In a significant move to strengthen financial regulations in Turkey, the Ministry has introduced Article 5 of the Law on “Education, Internal Audit, Control and Risk Management Systems and Other Measures” which mandates obliged entities to establish compliance programs.

Who Must Comply?

Obliged entities including:

• Banks
• Capital market intermediary institutions
• Insurance and pension companies
• Post and telegraph corporation joint stock company (limited to banking activities)
• A group of authorized institutions specified in the Foreign Exchange Legislation
• Finance, factoring, and financial leasing companies
• Portfolio management companies
• Precious metals intermediary institutions
• Electronic money institutions
• Payment institutions

must develop a compliance program based on a risk-based approach.

Components of the Compliance Program

The compliance program will consist of measures such as:

• Establishment of Institutional Policies and Procedures
  • Development of policies to ensure compliance with regulations related to the prevention of money laundering and financing of terrorism.
  • Outline of strategies, internal controls, and measures to reduce risks.
• Risk Management Activities
  • Establishment of a risk management policy within the institutional policy framework.
  • Identification, assessment, monitoring, evaluation, and mitigation of risks that may be exposed to.
• Monitoring and Control Activities
  • Continuous supervision of whether activities comply with institutional policies and procedures.
  • Examples include:
    • Monitoring high-risk customers and transactions
    • Monitoring complex and unusual transactions
    • Conducting sampling checks
• Appointment of a Compliance Officer and Establishment of a Compliance Unit
  • The compliance officer will be responsible for implementing the compliance program and reporting to the board of directors or one or more members delegated by the board.
  • Qualifications outlined in Article 17 of the Regulation.
• Execution of Training Activities and Execution of Internal Audit Activities

Consequences of Non-Compliance

Failure to establish a compliance program may result in severe penalties, including:

• Fines
• Imprisonment

Therefore, obliged entities must take immediate action to ensure compliance with these regulations.

The introduction of Article 5 is a significant step towards strengthening financial regulations in Turkey and promoting transparency and accountability in the financial sector.