South Korea’s Crypto Regulation Shift: Democratic Party Excludes Controversial Exchange Ownership Cap from Landmark Bill

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South Korea’s Crypto Regulation Shift: Democratic Party Excludes Controversial Exchange Ownership Cap from Landmark Bill

In a significant development for Asia’s digital asset landscape, South Korea’s ruling Democratic Party has decided to exclude a proposed cryptocurrency exchange ownership cap from its forthcoming Digital Asset Basic Act. This pivotal decision, reported by Hankyung TV on March 15, 2025, marks a strategic shift in the nation’s approach to regulating its vibrant crypto sector. The move follows intensive deliberations by the party’s Digital Asset Task Force and carries substantial implications for market structure, investor protection, and the planned introduction of a won-backed stablecoin.

South Korea’s Crypto Regulation Evolves Beyond Ownership Caps

The Democratic Party’s Digital Asset Task Force, chaired by Lee Jeong-mun, reached a consensus during a closed-door meeting. Members agreed that including specific ownership limitations in the current legislative package would create timing and strategic complications. Consequently, the Task Force will advance the Digital Asset Basic Act without provisions that would restrict a single major shareholder’s stake in a cryptocurrency exchange to 20%. This represents a notable departure from earlier considerations by South Korea’s Financial Services Commission (FSC), which had actively explored such concentration limits to mitigate systemic risk and potential market manipulation.

Industry analysts immediately recognized the decision’s importance. They view it as a pragmatic response to the complex realities of operating digital asset platforms. Furthermore, the exclusion suggests lawmakers are prioritizing comprehensive regulatory frameworks over piecemeal restrictions. The forthcoming bill will now focus more intently on establishing clear operational standards, consumer safeguards, and the regulatory groundwork for a state-sanctioned digital won.

Background and Context of the Digital Asset Basic Act

South Korea’s journey toward formal cryptocurrency legislation began years ago, spurred by rapid retail adoption and high-profile market incidents. The Digital Asset Basic Act itself emerged as a legislative priority following the Terra-LUNA collapse in 2022, which significantly impacted Korean investors. This event underscored the urgent need for a coherent legal structure to govern issuance, listing, and trading activities.

The proposed ownership cap, initially floated by the FSC, aimed to prevent excessive control by any single entity. Regulators modeled this concept on existing financial sector rules designed to ensure fair competition and operational integrity. However, the Task Force’s recent assessment indicates a strategic recalibration. Lawmakers now appear to favor a more holistic approach, integrating exchange governance into broader mandates for transparency, cybersecurity, and reserve management.

• Legislative Timeline: The Act has undergone multiple committee reviews since its initial proposal.
• Stakeholder Input: Industry groups consistently argued that a strict ownership cap could stifle investment and innovation.
• International Context: This decision contrasts with approaches in some jurisdictions considering similar ownership limits.

Expert Analysis on Regulatory Strategy and Market Impact

Financial policy experts note that the exclusion of the ownership cap reflects a mature regulatory evolution. “This move suggests South Korean authorities are learning from global regulatory experiments,” observes Dr. Min-ji Park, a fintech law professor at Seoul National University. “They are opting for a framework that manages risk through operational compliance rather than structural mandates that may have unintended consequences.” The focus consequently shifts to other critical components of the bill, particularly its provisions for a won-backed stablecoin.

The development of a central bank digital currency (CBDC) or a regulated private stablecoin has been a parallel policy track. The Digital Asset Basic Act is expected to establish the legal basis for issuing, managing, and auditing such digital currencies. Their integration with the existing exchange ecosystem—now without ownership constraints—will be a complex but crucial undertaking for ensuring financial stability.

The Path Forward for Crypto Exchanges and Stablecoin Integration

With the ownership cap off the table, existing major exchanges like Upbit, Bithumb, and Korbit can maintain their current corporate structures. This stability is vital for attracting continued institutional investment into South Korea’s digital asset infrastructure. However, the removal of the cap does not equate to a regulatory vacuum. Exchanges will face heightened obligations in other areas, likely including:

• Enhanced Disclosure: Requirements for real-time reporting of large transactions and wallet reserves.
• Strict Custody Rules: Segregation of customer assets and proof of reserves.
• Market Surveillance: Mandates to monitor and report suspicious trading patterns.

The successful launch of a won-backed stablecoin, another cornerstone of the bill, depends on this robust exchange framework. A regulated stablecoin could reduce reliance on volatile international assets like Tether (USDT) and provide a safer on-ramp for new users. Its implementation will require close collaboration between regulators, exchanges, and traditional banks to ensure seamless convertibility and anti-money laundering compliance.

Conclusion

South Korea’s decision to exclude the cryptocurrency exchange ownership cap from the Digital Asset Basic Act represents a calculated and strategic pivot in regulatory philosophy. It balances the need for market oversight with the practical realities of fostering a competitive and innovative digital asset sector. As the bill progresses, attention will firmly shift to its comprehensive rules for exchange operations, consumer protection, and the historic introduction of a won-backed stablecoin. This approach positions South Korea to potentially set a global benchmark for nuanced and effective digital asset regulation.

FAQs

Q1: What was the proposed cryptocurrency exchange ownership cap in South Korea?
The Financial Services Commission had considered a plan to limit a single major shareholder’s stake in a crypto exchange to 20%, aiming to prevent excessive control and concentration of risk.

Q2: Why did the Democratic Party decide to exclude the ownership cap?
Following a meeting of its Digital Asset Task Force, the party concluded that including the ownership rules would be problematic due to timing and overall legislative strategy, opting for a more holistic regulatory framework instead.

Q3: What is the Digital Asset Basic Act?
It is a landmark piece of proposed legislation in South Korea designed to provide a comprehensive legal framework for digital assets, covering areas like exchange operation, investor protection, and the issuance of stablecoins.

Q4: How does this decision affect major South Korean crypto exchanges?
The decision allows existing major exchanges to maintain their current ownership structures, providing operational stability and potentially encouraging further investment in the domestic crypto infrastructure.

Q5: What is the significance of the won-backed stablecoin mentioned in the bill?
The bill addresses the creation of a regulated digital currency pegged to the South Korean won. This aims to provide a stable medium of exchange within the crypto ecosystem, reduce dependence on foreign stablecoins, and enhance overall financial stability.

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