In a significant move to tighten regulations in the cryptocurrency sector, South Korea’s government and ruling party have reportedly agreed to cap the ownership stakes of major shareholders in domestic crypto exchanges at 20%. The Democratic Party of Korea’s digital asset task force and the Financial Services Commission (FSC) have reached this agreement after extensive discussions, according to a Wednesday report by local media outlet Herald Economy.
Key Provisions and Exceptions
Under the proposed regulation, exchanges will have a three-year period from the law’s enforcement to adjust their ownership structures. Smaller exchanges may receive an additional three-year grace period to comply. However, the regulators have shown flexibility by allowing exceptions of up to 34% for new businesses through an enforcement decree. This threshold is aligned with the Commercial Act’s 33.3% veto threshold in general shareholders’ meetings.
Impact on Major Exchanges
The proposed cap has significant implications for South Korea’s leading crypto platforms. Currently, major exchanges like Upbit and Bithumb, which together control approximately 90% of the local market, exceed the proposed 20% ownership limit. For instance, Upbit chairman Song Chi-hyung holds about 25.52%, while Bithumb Holdings owns roughly 73.56% of Bithumb. Similarly, Coinone chairman Cha Myung-hoon controls about 53.44%, and Mirae Asset Consulting is set to hold around 92.06% of Korbit following an acquisition. Binance owns about 67.45% of GOPAX.
Legislative Process and Industry Concerns
The proposal, which has garnered some support among regulators, faces a lengthy legislative process. A member of the National Assembly is expected to introduce the bill, although the sponsor has not yet been determined. The passage of the bill may be challenging, as some lawmakers, including members of the ruling party, have raised concerns about the restrictions on ownership in the sector.
An industry insider warned that the measure could have broader implications for competition. “This is unprecedented worldwide and has low global consistency. If it is excessively introduced, it could have serious negative effects such as limited competition, slowed innovation, and strengthened barriers to entry,” they reportedly told the outlet.
Broader Regulatory Context
The proposal comes amid a broader tightening of crypto regulations in South Korea. In late January, the National Assembly approved changes to the country’s crypto licensing framework, introducing stricter entry requirements for virtual asset service providers (VASPs). The updated rules allow authorities to examine executives and major shareholders for a wider range of potential violations, including drug trafficking, tax evasion, fair-trade breaches, and serious economic crimes.
In February, Democratic Party lawmaker Kim Seung-won also announced plans to draft amendments to the Capital Market and Financial Investment Business Act and the Act on the Protection of Virtual Asset Users. These amendments would mandate disclosure from individuals who provide investment advice or encourage trading of financial products or virtual assets.
Forward-Looking Insight
The proposed 20% ownership cap on crypto exchanges in South Korea reflects the government’s commitment to enhancing market stability and protecting investors. While the measure aims to prevent monopolistic practices and ensure a level playing field, it also poses challenges for the industry. The success of this regulation will depend on how effectively it balances the need for oversight with the necessity of fostering innovation and competition in the rapidly evolving crypto landscape.
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