Seoul, Feb 2024 – South Korea’s Financial Services Commission (FSC) pushes ahead with a plan to limit the ownership stakes of major shareholders in licensed cryptocurrency exchanges, citing the need for “public‑infrastructure”‑style governance.
The proposal, championed by FSC Chair Lee Eog‑weon, would cap any single shareholder’s holding in a crypto exchange at roughly 15‑20 percent. Lee argues that, as the sector moves from a three‑year renewal “notification” system to a more permanent “authorization” regime under the pending Digital Asset Basic Act, exchanges should be subject to the same governance safeguards that apply to securities exchanges and alternative trading systems.
Regulatory backdrop
- Policy draft: Earlier this month the FSC submitted a coordination paper to the National Assembly that earmarked ownership limits as a core element of the forthcoming Digital Asset Basic Act. The document described crypto exchanges as “core infrastructure” for the digital‑asset market, warning that concentrated ownership could jeopardise market integrity.
- Legislative timeline: The ruling Democratic Party intends to introduce the bill before the Lunar New Year holiday on Feb 17. While most provisions have cleared preliminary talks, the shareholder‑cap and the central bank’s role remain under negotiation.
- Related measures: Lawmakers have already agreed on a minimum capital requirement of 5 billion won (about $3.7 million) for stablecoin issuers, a separate but complementary effort to tighten oversight of the sector.
Industry reaction
Domestic exchanges have signalled strong resistance. Dunamu, the operator of Upbit, sees its chair Song Chi‑hyung and affiliated parties holding more than 28 percent of the company’s shares. Coinone’s founder Cha Myung‑hoon retains a controlling 53 percent stake. Both firms warn that the cap would force substantial restructuring, potentially diluting strategic investors and disrupting current governance arrangements.
Analysis
-
Market concentration vs. stability – South Korea’s crypto market is dominated by a handful of large platforms. Limiting ownership stakes could reduce the risk of unilateral decision‑making and align the sector with global best practices for market infrastructure. However, the caps may also compel exchanges to spin off or sell parts of their holdings, creating short‑term operational uncertainty.
-
Regulatory alignment – By treating exchanges as quasi‑public utilities, the FSC is signalling a shift toward tighter, standards‑based oversight. This mirrors the regulator’s approach to securities markets and could pave the way for more robust consumer protections, AML/KYC enforcement, and market surveillance.
-
Impact on investment – Foreign and institutional investors may view the caps as a positive signal of a stable regulatory environment, encouraging long‑term capital inflows. Conversely, existing large shareholders could be deterred from deepening their commitment, potentially limiting the pool of strategic partners that can provide financing and technology support.
- Political calculus – The Democratic Party’s push to pass the Digital Asset Basic Act before the holiday underscores the government’s determination to formalise the crypto sector. Yet internal dissent over the ownership provision hints at a broader debate about how aggressively South Korea will regulate digital assets without stifling innovation.
Key takeaways
- Ownership caps of 15‑20 percent are likely to become a statutory requirement once the Digital Asset Basic Act is enacted.
- Major exchanges will need to restructure their shareholdings, which could trigger secondary market activity and possible changes in board composition.
- The FSC’s stance positions crypto exchanges alongside securities exchanges, marking a decisive move toward stricter governance standards.
- While the caps aim to improve market integrity, they also raise questions about the sector’s ability to attract large strategic investors.
- The legislation is still subject to committee review and a final vote in the National Assembly; the ownership provision remains the most contested element.
As South Korea finalises its digital‑asset framework, the proposed ownership limits could become a benchmark for other jurisdictions grappling with the balance between fostering innovation and ensuring systemic stability in the rapidly evolving cryptocurrency market.
Source: https://cointelegraph.com/news/south-korea-fsc-crypto-exchange-ownership-caps?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
