Introduction
Custody services in Turkish capital markets are one of the most important legal mechanisms protecting investors, investment funds, portfolio management clients and collective investment institutions. In capital markets, investors often do not physically hold securities. Instead, shares, investment fund units, debt instruments, warrants, certificates, government debt instruments, lease certificates and other dematerialized capital market instruments are recorded and held through regulated custody systems.
The Turkish custody framework is based on Capital Markets Law No. 6362, the rules of the Capital Markets Board of Türkiye, known as the CMB in English and SPK in Turkish, the Central Registry Agency, known as Merkezi Kayıt Kuruluşu A.Ş. or MKK, Takasbank, investment institutions, portfolio custody institutions and the Investor Compensation Center, known as Yatırımcı Tazmin Merkezi or YTM.
Custody is not simply a back-office service. It is a legal protection system. It ensures that investor assets are recorded separately, transactions are settled properly, investment fund assets are kept under independent supervision, portfolio managers do not freely control client assets, and investors can claim protection where an investment institution cannot return cash or capital market instruments. The SPK explains that, under Article 56 of Capital Markets Law No. 6362, assets in collective investment institutions’ portfolios must be delivered to a portfolio custody institution to be kept in a separate custody account opened in the name of the relevant institution.
Legal Framework of Custody Services in Turkey
The legal framework of custody services in Turkish capital markets can be divided into several layers. First, central custody of dematerialized capital market instruments is carried out through MKK. Second, portfolio custody for collective investment institutions and portfolio management structures is regulated under Communiqué III-56.1 on Portfolio Custody Services and Institutions Providing Such Services. Third, investment institutions may provide custody-related services within their authorized investment services and ancillary services framework. Fourth, Takasbank plays an important role in settlement, clearing and custody-related infrastructure. Fifth, YTM provides compensation protection where investment institutions fail to fulfill cash payment or securities delivery obligations.
The SPK’s legislation system lists Communiqué III-56.1 as the main communiqué on portfolio custody services; it was published in the Official Gazette on 2 July 2013 under number 28695. The SPK also explains that, from 1 July 2014, assets in investment funds, investment trusts and individual portfolios managed by portfolio management companies became subject to custody with a CMB-authorized portfolio custodian, subject to transition rules.
This layered framework means that custody must be analyzed according to the type of asset, investor, institution and service. Custody of listed shares through MKK is different from portfolio custody of an investment fund. Custody of assets in an individually managed portfolio is different from custody of fund assets. Investor compensation is different from ordinary custody bookkeeping. Legal duties should therefore be assessed case by case.
What Is Custody in Capital Markets?
In capital markets, custody means the safekeeping, recording, monitoring and transfer of capital market instruments and related rights. In a dematerialized system, custody usually does not involve storing physical paper certificates. Instead, ownership and rights are recorded electronically.
MKK states that it is the central custody institution for dematerialized capital market instruments. It keeps and monitors capital market instruments determined by the CMB and related rights electronically. MKK also explains that its system keeps securities where they are issued, held in accounts based on beneficial owners, transferred and subject to rights, making it Türkiye’s central depository structure.
Custody also includes monitoring rights attached to securities. These may include dividends, bonus shares, interest payments, redemption payments, voting-related records, pledge rights, usufruct rights and other legal restrictions. MKK explains that the dematerialized system supports legal security by preventing forgery, ensuring consistency between real right holders and recorded right holders, and maintaining an uninterrupted chain of title.
Central Custody by MKK
The role of MKK is central in Turkish securities custody. Under Article 81 of Capital Markets Law No. 6362, dematerialized capital market instruments are kept at MKK on a beneficial-owner basis. The SPK’s investor information page explains that investor accounts are opened in the Central Registry System by investment institutions and that a separate and unique registry number is generated for each investor. Investors can view the capital market instruments they hold through accounts opened at MKK.
This beneficial-owner-based structure is extremely important for investor protection. In older physical certificate systems, securities could be lost, forged, stolen or transferred through problematic physical delivery chains. In the modern Turkish dematerialized system, rights are recorded electronically and traceably. MKK emphasizes that the dematerialized system helps prevent forgery and ensures compatibility between actual right holders and registry holders.
MKK’s custody services cover a broad range of instruments. MKK states that it records and holds instruments such as Borsa İstanbul-listed shares, investment funds, exchange-traded funds, private sector bonds, financing bills, bank bills, warrants, asset-backed securities, covered securities, government debt instruments held in investor portfolios and public lease certificates.
Takasbank and Settlement Infrastructure
Custody services are closely connected with clearing and settlement. In Turkish capital markets, Takasbank plays a key role in the settlement infrastructure. MKK explains that, for Borsa İstanbul transactions involving shares, exchange-traded funds, warrants, investment institution certificates, real estate certificates, real estate investment funds, venture capital investment funds, private sector debt instruments and lease certificates, settlement processes use Takasbank and intermediary institution pool accounts at MKK, and the process operates through an integrated system between MKK and Takasbank.
This relationship is important because custody is not only about where securities are held; it is also about how transactions are completed. When an investor buys shares on Borsa İstanbul, securities and cash must be transferred through a regulated settlement mechanism. The custody and settlement infrastructure reduces counterparty risk, operational risk and ownership-record risk.
For investors, the important practical point is that securities acquired through authorized investment institutions are recorded through the official central system. If an alleged investment platform cannot show proper MKK, Takasbank or authorized institution infrastructure, there may be serious legal risk.
Portfolio Custody Under Article 56
Portfolio custody is different from ordinary central custody. It applies especially to collective investment institutions and managed portfolios. Under Article 56 of Capital Markets Law No. 6362, collective investment institutions’ portfolio assets must be delivered to a portfolio custody institution to be kept in separate custody accounts opened in the name of those institutions. The SPK’s portfolio custody guide explains that portfolio custody includes monitoring whether investment fund unit issuance and redemption, variable-capital investment company share issuance and redemption, unit value calculation, portfolio management instructions, asset transactions, portfolio structure and income use comply with legislation and fund documents.
This means a portfolio custodian is not a passive warehouse. It performs a control function. It checks whether the fund’s transactions comply with the law, fund bylaws, articles of association and applicable valuation principles. It helps ensure that the portfolio manager cannot act outside the investment strategy or misuse fund assets.
The SPK states that the portfolio custody institution is liable for damages caused to the portfolio management company and participation unit holders in investment funds, and to the investment company in investment trusts, due to failure to perform its duties. This liability rule is essential because custody institutions are part of the investor protection architecture.
Communiqué III-56.1 and Portfolio Custody Institutions
The main regulation for portfolio custody is Communiqué III-56.1. The SPK’s legislation system identifies this communiqué as the regulation concerning portfolio custody services and institutions that provide such services.
Portfolio custody institutions are subject to CMB authorization. The SPK has a separate section for portfolio custody institutions, including a guide, application documents and authorized portfolio custody institutions. This shows that portfolio custody is not a service any bank, broker, accountant or private company can provide informally. Authorization and compliance are required.
The SPK’s 2013 announcement explained that organizations wishing to provide portfolio custody services, and organizations wishing to provide custody services for individual portfolio management clients of portfolio management companies, had to apply to the CMB using the relevant application forms after the communiqué framework was introduced.
Custody of Assets in Individual Portfolio Management
Custody is also important in individual portfolio management. When a portfolio management company manages a client portfolio under a portfolio management agreement, the client assets must be kept according to CMB rules on portfolio custody services. The SPK’s portfolio management guide states that assets in customer portfolios managed by portfolio management companies as proxy must be kept within the framework of CMB portfolio custody regulations. Takasbank and CMB-authorized banks and intermediary institutions may provide portfolio custody services if they meet the conditions in Communiqué III-56.1.
The same guide states that a contract must be signed between the portfolio custodian and the portfolio management company, setting out the authority and responsibilities of the parties and determining the information flow necessary for the custodian to perform its duties.
This separation protects clients. A portfolio management company should not freely hold and control all client assets in an unregulated manner. The portfolio manager may make investment decisions within the contract, but custody should be handled by an authorized institution under a formal custody arrangement.
Custody by Investment Institutions
Investment institutions may also provide custody services within the scope of authorized investment services and ancillary services. The CMB’s updated investment services guide includes a dedicated section on custody services. It states that if investment institutions provide custody services only for individual portfolios managed by themselves or by other investment institutions, and not for portfolio management companies or collective investment institutions, they are not subject to Communiqué III-56.1 and the organizational requirements in that communiqué.
This distinction matters in practice. Some custody services fall under investment institution activity, while others fall under portfolio custody rules. For example, custody of securities in an ordinary investor account at a brokerage firm is not always the same as portfolio custody for an investment fund. Legal characterization depends on the service, client type and portfolio structure.
Investment institutions should therefore carefully identify whether they are providing general custody, limited custody, portfolio custody, individual portfolio custody or collective investment custody. Misclassification may lead to regulatory breach.
Segregation of Investor Assets
A core principle of custody law is segregation of assets. Investor assets should not be mixed with the custodian’s own assets or the investment institution’s assets. In collective investment structures, the assets must be kept in separate accounts opened in the name of the collective investment institution.
Segregation is critical in insolvency and enforcement situations. If investor assets are properly recorded and segregated, they should be identifiable as belonging to investors or the relevant fund, not as assets of the intermediary institution, portfolio manager or custodian. This reduces the risk that customer assets are used to satisfy the custodian’s own creditors.
For investors, this is one of the main reasons to work only with authorized institutions. An unauthorized person who receives investor funds into a personal bank account is not providing regulated custody. In such a case, the investor may become an ordinary claimant against that person rather than a protected investor with recorded assets in the official custody system.
Legal Duties of Portfolio Custodians
Portfolio custodians have both safekeeping and supervisory duties. Under the SPK’s explanation of Article 56, portfolio custody service includes checking the legality of issuance and redemption of fund units, checking calculation of unit value, carrying out lawful instructions, transferring transaction proceeds in due time, ensuring income is used according to legislation and fund documents, and checking that asset purchases, sales, portfolio structure and transactions comply with legislation and fund documents.
These duties are practical and substantive. A custodian should not obey every instruction blindly. If a portfolio management instruction violates fund documents or legislation, the custodian’s control role becomes relevant. This is a major distinction between ordinary account custody and regulated portfolio custody.
A portfolio custodian must also maintain proper records, ensure timely settlement, monitor asset movements, verify valuation-related processes where required, and provide information to the portfolio manager and regulators. Operational weakness may cause serious investor harm.
Internal Control and Operational Requirements
Custody institutions must maintain appropriate internal control systems. The SPK’s principle document on custody of individual portfolios emphasizes that workflow, control processes and job descriptions must be determined by custody bank management and written down. It also states that transaction settlement operations and settlement controls should be performed by different persons, depending on transaction volume and portfolio size.
This is important because custody failures are often operational. Examples include wrong account transfers, delayed settlement, unauthorized securities movement, reconciliation failures, incorrect unit value control, inadequate client confidentiality, or failure to detect unlawful portfolio manager instructions.
Separation of duties is a key safeguard. The same person should not be able to initiate, approve and reconcile custody movements without independent control. Custody institutions should also maintain secure information systems, audit trails, reconciliation processes, incident reporting and disaster recovery systems.
Client Confidentiality and Data Protection
Custody institutions hold sensitive investor and portfolio information. This may include investor identity, account balances, trading activity, fund assets, portfolio allocations, payment flows, tax-related data and beneficial ownership records. The SPK’s custody-related principles state that relevant managers’ job descriptions should include confidentiality responsibilities toward clients and that such responsibilities should be undertaken toward the portfolio management company.
Confidentiality is not only a customer-service issue. It is connected with market abuse prevention. If confidential portfolio information leaks, it may be used for front-running, insider trading, market manipulation or unfair investor advantage. Custody institutions should therefore restrict access to sensitive information and monitor internal data use.
Custody and Investor Compensation
Custody protection is also connected with the Investor Compensation Center, or YTM. YTM describes itself as a public legal entity established to implement CMB compensation decisions when investment institutions fail to fulfill cash payment or capital market instrument delivery obligations arising from investment services and activities.
Under Article 82 of Capital Markets Law No. 6362, the CMB decides on investor compensation where it determines that investment institutions cannot or will soon be unable to fulfill cash payment or capital market instrument delivery obligations arising from capital market activity. This decision must be made within three months from the determination.
The scope of compensation is defined under Article 84. It covers claims arising from failure to fulfill cash payment or capital market instrument delivery obligations relating to cash or capital market instruments belonging to investors and held or managed on behalf of investors by investment institutions in connection with investment services or ancillary services. However, losses arising from investment advice or market price movements are not within the compensation scope.
This distinction is critical. If an investor loses money because a share price falls, that is market risk and not YTM compensation. If an investment institution cannot return securities or cash that it should have held for the investor, that may fall within the compensation framework if the CMB issues a compensation decision.
Compensation Process
Under Article 85, investors submit compensation claims to YTM in writing, and the right to request compensation becomes time-barred one year after announcement of the compensation decision. YTM must make preparations to compensate eligible investors and, after identifying right holders and compensation amounts, must make payments within three months; this period may be extended for another three months with CMB approval in mandatory cases.
Article 85 also provides that capital market instruments held on behalf of investors are first distributed to right holders, and compensation is calculated based on cash payment and securities delivery obligations not fulfilled by the investment institution, taking account of set-off and similar legally or contractually valid claims.
For investors, this means records matter. Account statements, transaction confirmations, MKK records, investment institution statements and written instructions may become decisive in determining whether the investor has a compensable claim.
What Custody Protection Does Not Cover
Custody law protects against certain institutional failures, not against every investment loss. YTM’s protection scope expressly excludes losses arising from investment advice or market price movements. This means that an investor cannot claim compensation merely because a stock, bond, fund or derivative lost value.
Similarly, if an investor voluntarily transfers money to an unauthorized person or fake platform outside the regulated system, YTM protection may not apply. Such cases may involve criminal complaint, civil lawsuit, enforcement proceedings or fraud claims, but they are different from compensation under the capital market investor compensation regime.
Investors should therefore distinguish between custody failure, market loss, bad advice, fraud, unauthorized activity and counterparty default. Each has different legal consequences.
Custody and Unauthorized Investment Platforms
Custody protection is one reason investors should avoid unauthorized investment platforms. A legitimate capital market custody system relies on authorized investment institutions, MKK records, Takasbank settlement and CMB supervision. Unauthorized platforms often ask investors to transfer funds to personal bank accounts, foreign wallets, offshore companies or unregulated trading portals. In such cases, investor assets may not be recorded in the Turkish central custody system.
If the platform disappears or refuses withdrawals, the investor may not have securities recorded at MKK. The investor may only have a claim against a fraudulent operator. This is why due diligence before investment is crucial.
Practical warning signs include refusal to identify the authorized investment institution, no MKK account record, money transfer to personal accounts, claims that “custody is abroad” without proof, fake account screenshots, guaranteed returns, and inability to provide legally recognized account statements.
Duties of Portfolio Management Companies Regarding Custody
Portfolio management companies must ensure that assets in managed portfolios are kept through proper custody arrangements. The SPK’s portfolio management guide states that assets in client portfolios managed by portfolio management companies must be kept under the CMB’s portfolio custody regulations and that a custody contract must be signed between the portfolio custodian and the portfolio management company.
This means the portfolio management company has an active duty. It cannot simply say that custody is the custodian’s responsibility and ignore custody arrangements. It must select an authorized custodian, establish proper information flow, ensure account setup and monitor compliance.
If a portfolio management company manages assets without proper custody, or if it receives client assets into accounts not subject to regulated custody, regulatory and civil liability may arise.
Liability of Custody Institutions
Portfolio custody institutions are liable for damages caused by failure to perform their duties. The SPK’s guide expressly states that the portfolio custody institution is responsible for damages caused to portfolio management companies and participation unit holders in investment funds, and to investment companies, due to failure to fulfill its obligations.
Examples of liability may include failure to detect an unlawful instruction, delay in transferring transaction proceeds, incorrect unit value control, failure to keep assets in separate accounts, operational errors causing asset loss, failure to reconcile records, or unauthorized asset movement.
The scope of liability depends on the nature of the service, contract, legislation, fault, causation and damage. In serious cases, CMB sanctions, civil litigation and criminal allegations may also arise.
Liability of Investment Institutions
Investment institutions holding or managing investor cash and securities may face liability if they fail to return assets or comply with custody rules. If the failure reaches the level described in Article 82, the CMB may issue an investor compensation decision.
However, compensation by YTM does not necessarily eliminate all liability of the institution, its managers or responsible persons. Depending on the facts, investors may also pursue claims for damages, fraud, breach of trust, negligence or other legal grounds. Regulators may impose sanctions and prosecutors may investigate criminal conduct where customer assets were misused.
Custody and Pledge, Usufruct and Legal Restrictions
Custody systems also support legal restrictions over capital market instruments. MKK states that pledges and collateral rights over dematerialized capital market instruments are reflected in MKK records by members on the basis of the owner of the capital market instrument and the person in favor of whom the right is established. Usufruct rights are also tracked in MKK records.
This is important for litigation, enforcement, financing and corporate transactions. A share pledge, public receivable seizure, tax-related attachment, inheritance dispute or usufruct arrangement should be reflected properly in the custody system. If records are inaccurate, disputes may arise over voting rights, dividend rights, transferability or enforcement.
Recordkeeping and Investor Monitoring
Investors should actively monitor their custody records. The SPK explains that investors can see capital market instruments held through their investment institution accounts in accounts opened at MKK. This is a major investor protection tool.
Investors should periodically compare investment institution statements with MKK records. If there is a discrepancy, the investor should immediately contact the investment institution and, if necessary, raise the issue with MKK, the CMB or legal counsel. Delayed objections may make factual reconstruction more difficult.
Common Custody Risks
Common custody risks include unauthorized transfer of securities, failure to segregate assets, incorrect account opening, mismatch between investment institution records and MKK records, failure to reflect pledge or legal restrictions, delayed settlement, wrong dividend or interest payment allocation, incorrect fund unit valuation control, custody with unauthorized platforms, and operational failures during liquidation of an investment institution.
In portfolio custody, additional risks include failure to monitor fund investment limits, failure to detect unlawful portfolio manager instructions, failure to verify unit value calculation, and failure to ensure timely transfer of cash or securities arising from fund transactions.
Practical Checklist for Investors
Investors should use the following checklist:
Work only with CMB-authorized investment institutions.
Verify whether securities are recorded in MKK accounts.
Compare investment institution statements with MKK records.
Do not transfer investment funds to personal accounts.
Ask where and how assets are custodied.
Check whether portfolio management assets are held by an authorized custodian.
Preserve account statements and transaction confirmations.
Monitor dividends, interest, redemption and corporate action payments.
Be cautious about platforms that cannot show MKK, Takasbank or authorized custody arrangements.
Apply to YTM within the legal period if a CMB compensation decision is issued.
Practical Checklist for Portfolio Management Companies
Portfolio management companies should:
Select a CMB-authorized portfolio custodian.
Sign a written custody agreement defining responsibilities and information flow.
Ensure client and fund assets are held in separate custody accounts.
Maintain reconciliation between portfolio records and custodian records.
Provide timely instructions consistent with fund documents and law.
Monitor custodian performance.
Ensure investor reports reflect custody records accurately.
Document all asset movements.
Review custody arrangements during fund establishment and new portfolio onboarding.
Avoid receiving client assets outside authorized custody channels.
Practical Checklist for Custody Institutions
Custody institutions should:
Maintain written workflows and control processes.
Separate settlement operations and control functions.
Employ sufficient qualified personnel.
Protect client confidentiality.
Maintain reliable IT systems and audit trails.
Reconcile records regularly.
Monitor legal compliance of fund transactions where portfolio custody duties apply.
Transfer cash and securities in due time.
Report irregularities to relevant parties.
Preserve records and support CMB supervision.
Ensure staff understand their liability exposure.
Conclusion
Custody services in Turkish capital markets are a central investor protection mechanism. They ensure that capital market instruments and related rights are recorded, monitored, transferred and protected through regulated systems. MKK operates as Türkiye’s central custody institution for dematerialized capital market instruments, while Takasbank plays a critical role in settlement infrastructure.
Portfolio custody under Article 56 of Capital Markets Law No. 6362 and Communiqué III-56.1 provides an additional protection layer for collective investment institutions and managed portfolios. Portfolio custodians do not merely hold assets; they also monitor compliance of fund issuance and redemption, valuation, portfolio transactions, income use and portfolio structure with legislation and fund documents.
Investor compensation through YTM provides protection where investment institutions cannot fulfill cash payment or securities delivery obligations arising from investment services, but this protection does not cover ordinary market losses or losses arising from investment advice.
For investors, custody due diligence is essential. Securities should be held through authorized systems, MKK records should be monitored and unauthorized platforms should be avoided. For portfolio management companies, proper custody arrangements are a core legal duty. For custody institutions, operational control, segregation, compliance monitoring and confidentiality are high-liability obligations.
In conclusion, custody services are not a technical back-office detail. They are the legal infrastructure of trust in Turkish capital markets. Any investor, portfolio management company, fund founder, custodian, investment institution or foreign market participant dealing with custody services in Turkey should obtain professional legal advice where account segregation, asset return, portfolio custody, investor compensation, unauthorized platforms or custody liability is in dispute.
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