• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren


On 14 September 2019, Banking Regulation and Supervision Agency has issued the Communiqué on Compliance with the Principles and Standards of Interest Free Banking, whose purpose is to set forth the principles and procedures of the “interest free banking” for the participation banks, development and investment banks providing finance in Turkey (the “Communique”).


The Communiqué requires establishment of a “consultative committee” within these banks in order to ensure their compliance with the principles of interest free banking (the “Committee”). The Committee is composed of at least three members, at least two-thirds of which, must be resident of Turkey and experienced in interest free financing for at least three years. Among other qualifications required in the Communiqué, at least two-thirds of these members must also have a bachelor degree in the field of Theology or its equivalents, or master’s degree or Ph.D. in interest-free financing.


Although the Committee is established under the control of the board of directors, and its reports are submitted thereto through their audit committee, the Communiqué clearly underlines the independency of decision making mechanism of the Committee and stipulates that the Committee will render its decisions independent from and without influence of the senior management and all the parties involved within the bank.


Furthermore, while the Communiqué provides details of the duties and powers of the Committee, it restricts the Committee to take any decisions against the decisions of Advisory Board which was established under the Participation Banks Association of Turkey. Amongst others, the Committee is entitled to examine internal regulations of the bank and ensure its compliance with the principles and standards of interest free banking. The Committee will also review, revise or approve the standard agreements of the bank and report the same to the Advisory Board.


According to the Communiqué, any dispute arising between the bank and its clients, is settled before the Committee within thirty days upon written request of the clients. However, the clients have a right to appeal to the Advisory Board against the decision taken by the Committee and Advisory Board is entitled to cancel, amend or ratify such decision.  


Additional liabilities for the board of directors, particularly in relation to the restructuring of the internal organization, policies and procedures of the bank in order to be compliant with the principles of interest free banking, are also provided in the Communiqué.


The Communiqué on the other hand, requires these banks to adequately and efficiently inform their clients on their products and services, contract terms and rights and obligations of their clients. The Communiqué entitles the Participation Banks Association of Turkey to issue the details of such information requirement within a year.    


Last but not least, the Communiqué obliges these banks to bring themselves into compliance with the provisions of the Communiqué within six months following its effective date which is 14 September 2019. 

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#Banking and Finance Law
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