Major Innovation in Capital Markets: Remote Identification and Electronic Conventions – Corporate/Commercial Law

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Turkey: Major innovation in capital markets: remote identification and electronic agreements

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RECENT DEVELOPMENTS

The Communiqué on remote identification methods to be used by brokerage firms and portfolio management companies and the electronic agreement (the “Communiqué”) was published in the Official Journal No. 31744 on February 8, 2022 and will come into effect. effective one month later.


With the Communiqué, it is possible for brokerage firms and portfolio management companies to identify and execute contracts with their clients in electronic media. Thus, the possibility, provided for by the Regulation on remote identification means for use by banks and electronic agreements, published in Official Journal No. 31441 of April 1, 2021, has also been granted to brokerage firms and portfolio management companies. For more information on the relevant regulations concerning banks, you can consult our legal alert of April 6, 2021 here.

What’s up?

Remote identification

  • General principles
    • The remote identification will be carried out by a virtual meeting between the client and the person designated by the brokerage firm or the portfolio management company to manage the remote identification process and by their communication via this meeting between them.

    • The remote identification method will be similar to the face-to-face method and will be designed to minimize risk. Adequate security measures will be adopted in the video call method, taking into account possible technological and operational risks.

    • Before the brokerage firm and the portfolio management company implement the remote identification process, they will define a workflow procedure, test the efficiency of the process and record the results. They will periodically review the remote identification procedure. If the test results fail, the necessary updates will be made to the procedure. The process will only be implemented if its effectiveness and adequacy are guaranteed.

  • Staff and remote identification process
    • Trained personnel will ensure the remote identification video call phase.

    • In the process of remote identification, the client’s request will be received via an electronic form before the start of the video call, and his risk assessment will be carried out. During the remote identification process, no sensitive personal data, other than biometric data, can be obtained in order to allow remote identification. The client’s explicit consent in this regard will be recorded electronically.

    • The remote identification video call phase will be carried out in real time, without interruption. The video call will be end-to-end encrypted.

    • A centrally generated OTP will be sent to the person via an SMS generated only for the identification process. The client will retransmit the OTP online through the app interface. If the system successfully approves this OTP SMS, the customer’s mobile number will be verified.

    • The brokerage firm or portfolio management company will take the necessary measures to serve people with disabilities.

  • Remote identification methods
    • Identification with visually distinguishable white light security features, photograph and signature will be required.

    • The identity information on the chip of the identity document will be verified by near field communication to form the necessary match and identify the person from the identity document.

    • In the event that verification cannot be performed using near field communication, the person’s identity will be verified during the remote identification process via video call. At least four of the visual security features of the identity document, which includes a photograph and a signature, must correspond to the visually distinguishable white light security features in terms of form and content. In addition to the identification carried out by checking only the visual security elements, the first financial transaction prior to the establishment of the continuing business relationship will be carried out through another financial institution, where the principles of customer identification are applied.

    • Staff will take photographs and/or screenshots showing the individual and the front and back of their ID, as well as the document information presented by the individual during the video call. Staff will ensure that the identity document is fully visible at right angles, together with all security features visually distinguishable under white light, and that there is no indication of tampering at transition points between parts of the identity document using images of the person’s movements.

  • Identity verification and document retention
    • During the video call, the identity of the person will be assured and the Staff will check if the identity document meets the criteria established by the competent authority and if it belongs to the person. At the end of the video call, the Staff will obtain verbal confirmation from the person that he will become a client of the brokerage firms/portfolio management company. The brokerage/asset management company will confirm that the necessary measures are in place to avoid potential risks of deep-fake technology.

    • The entire remote identification process will be recorded and stored and will be available for possible audits. The notice on the registration of documents will be taken into account when determining the retention periods for the relevant data. The documents will be kept for 10 years.

  • Responsibility for remote identification
    • The brokerage/asset management company will be responsible for ensuring that its remote identification solutions are used to minimize the risk of potential client misidentification and will follow up on those identified remotely in a different risk profile. The brokerage/asset management company will apply additional security and control methods depending on the nature and amount of the transactions carried out by these potential clients. The burden of proof rests with the brokerage firm/asset management company for transactions that impose obligations on third parties.

    • The Capital Markets Council may restrict or stop the remote identification process, in the event that the brokerage firm and/or the portfolio management company does not comply with the provisions relating to remote identification.

Establishment of agreements in the electronic media

  • Following the remote identification carried out according to the terms provided for in the Press Release, the client’s declaration for the establishment of a contract must be received after verification of his identity by an identity verification mechanism comprising at least two components. These two components will be selected from these elements: what the customer “knows” and “has”, or a “biometric characteristic”. It is also possible to receive the customer’s declaration for the conclusion of the contract during the video call.

  • To execute an agreement electronically, (i) all terms and conditions of the electronic agreement must be transmitted to the customer via the Internet or mobile applications in a way that is legible and understandable to them; (ii) the client’s declaration of intent for the establishment of the electronic agreement, as well as the agreement itself, must be sent to the brokerage firm and the portfolio management company with an exclusive secret encryption key to the client ; and (iii) the content of the agreement provided to the customer and the agreement signed by the customer must be exactly the same.

Conclusion

The Communiqué is a great convenience in capital market services, and clients can now enjoy the services of these institutions without having to physically visit the brokerage firm and/or the portfolio management company. As this possibility, previously used for banking services, has also been introduced for capital markets services, we expect that the number of brokerage firms and clients of asset management companies will increase and that the conditions of competition on the market will improve.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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