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November 25, 2012, Sunday

Turkish asset management companies

The way I am going to define an asset management company under Turkish law will be familiar for those who follow economic and financial news. This concept of defining the situation is not my invention -- you may recall the definitions and classifications by the ministers of economy of some countries over the past three or four years. “Spain is not Greece,” said Elena Salgado, the Spanish finance minister, in February 2010; “Portugal is not Greece,” stated The Economist in April 2010; “Greece is not Ireland,” said Giorgios Papaconstantinou, the Greek finance minister, in November 2010 and (although the list can be longer) finally, “Spain is neither Ireland nor Portugal,” said Salgado in November 2010. So there is now a different way of defining something by what it is not.

In order to avoid any confusion about the topic, an asset management company is not a property management company. An asset management company is neither a bank nor a property management company. An asset management company is not exactly an asset management company in terms of managing a third party's (its investors or clients, for example) pooled funds into securities in order to provide the client with diversification and investment options. An asset management company in Turkey is commonly known as a company which buys and collects the distressed debts of banks and other financial institutions.

Amendments to the Regulation on the Establishment and Operating Principles of Asset Management Companies have been introduced to the Turkish legal system only in the last decade.

Asset management companies are established with the Banking Regulation and Supervision Agency's (BDDK) permission. The process of licensing is slightly easier than banks but there are still strict regulations about the licensing. One of the major preconditions that are needed for the establishment of an asset management company is the minimum paid-upfront capital. An asset management company can only be established as a joint stock company and is required to have a minimum of TL 10 million in paid-up capital.

The regulations on asset management companies have recently been amended. A regulation on making amendments to the Regulation on the Establishment and Operating Principles of Asset Management Companies came into force on Nov. 14.

According to the new amendments, if a company does not apply to receive the activity license within 180 days following the establishment license, the establishment license will be invalid. Furthermore, companies should commence operations within a year following receiving the activity license. Otherwise, the activity license shall be revoked by the agency. Companies which have commenced operations should notify the situation to the agency within seven days. This is a deadline given to stabilize the asset management market and to determine the serious players from those who only intend to trade the licenses.

A new paragraph has been added to Article 13 of the regulation. Accordingly, if it is determined that companies are in a situation where their financial structures will be seriously negatively affected, the BDDK will request the companies take the necessary precautions. Asset management companies are obliged to take these measures which are requested from the agency.

According to Article 11 of the regulation, asset management companies can purchase or sell the receivables of banks, special finance institutions, other financial institutions and also insurance companies which providing credit insurance service, may convert assets into cash and they may also provide consultancy and intermediation services for the restructuring of the receivables and other assets.

According to Article 15 of the regulation, when the activity license of the asset management company is revoked by the board, the company must hold a plenary session within three months from the revocation date and should make a decision so as to change the company type and name or in order to trigger the liquidation process.

NOTE: Berk Çektir is a Turkish lawyer and available to answer questions on the legal aspects of living and doing business in Turkey. Please send inquiries to [email protected] If a sender's letter is published, names may be disclosed unless otherwise expressly stated by the sender.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not rely solely on the information in this column.

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