South Korea Moves to Cap Crypto Exchange Ownership

South Korea’s FSC proposes 15–20% ownership limits, forcing major crypto exchange shareholders to divest excess stakes.

South Korea’s Financial Services Commission (FSC) proposed a limit of 15–20% ownership stakes for major cryptocurrency exchange shareholders. The measure has an impact on the founders and controlling shareholders of the top exchanges of the country.

Officials said the regulation aims to improve governance and prevent excessive control by a few individuals. It ensures cryptocurrency exchanges operate under rules similar to traditional financial institutions. The measure also seeks to enhance transparency and protect users within the crypto market.

FSC Targets Korea’s Four Largest Exchanges

The regulation is aimed at Upbit, Bithumb, Coinone, and Korbit, and has a combined user base of 11 million. The FSC considers these exchanges to constitute “core infrastructure” for the distribution of virtual assets. Therefore, any shareholder who exceeds the new limits must rid themselves of an excess of shares. The framework is similar to requirements under the Capital Markets Act for regulated alternative exchanges.

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Upbit’s Chairman, Song Chi-hyung, owns about 25% of the exchange, which means he may have to sell 5-10% of his shares. Bithumb Holdings owns 73% of Bithumb, and needs to divest upwards of 50% of it. Coinone’s Chairman, Cha Myung-hoon, with 54%, would have to divest more than 34%, and it could have an impact on his management control.

The FSC noted that there are currently a small number of founders who exert disproportionate influence over the exchange operations. Large operating profits, which are largely generated from trading fees, are concentrated in the hands of a few shareholders.

Consequently, the FSC proposed a “large shareholder qualification examination system” which would monitor the ownership. It will ensure accountability and prevent excessive operational dominance in the virtual asset sector.

Industry Voices Concerns Over Excessive Regulation

Industry representatives have argued that the proposed limits could be an infringement on property rights and management autonomy. Analysts warned that forced divestments could deplete share prices and cause problems finding buyers for huge stakes.

Upbit’s continued merger with Naver Financial could encounter further obstacles as a result of these new restrictions on ownership. This will also create uncertainty for market participants and investors alike.

Critics are also of the view that the two-step legislation, aimed at encouraging virtual asset businesses and safeguarding consumers, could lead to over-regulation. The measure is included in the upcoming “Virtual Asset Phase 2 Bill, although no date of enactment has been confirmed. Transitional periods and final thresholds of ownership are still being discussed in the National Assembly to cover possible operational disruptions.

Supporters argue that ownership caps will lead to better governance, less concentrated control, and increased adherence to financial standards. The rules are intended to protect users and stabilize the market.

By imposing divestments, the government aims to strike a balance between private possession and public responsibility. This will mitigate the hazards of concentrated control and aligning exchanges with worldwide practices of regulations.

Overall, the proposal is a major regulatory shift for the cryptocurrency industry in South Korea. The rules may require divestments worth billions of won, restructure governance, and create a benchmark for cryptocurrency oversight in the future. Observers expect further debate in the National Assembly before final thresholds and details on enforcement are established.

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