South Korea Plans 20% Ownership Limit for Major Crypto Exchanges

South Korea is considering a 20% ownership cap for major shareholders in crypto exchanges. This move aims to decentralize control in a market dominated by a few platforms, impacting governance and potentially influencing global crypto regulations.

What Happened?

South Korea’s government and ruling Democratic Party are discussing a proposal to limit major shareholders’ stakes in domestic crypto exchanges to 20%. This initiative, emerging from talks between the digital asset task force and the Financial Services Commission, seeks to address ownership concentration.

The draft framework outlines that controlling shareholders of virtual asset trading platforms must adhere to a 20% ownership threshold, with possible exceptions up to 34% for new businesses. This reflects the Commercial Act’s 33.3% veto power at shareholder meetings.

If enacted, exchanges would have three years to adjust their ownership structures. Smaller exchanges may receive an additional three-year grace period, while the largest platforms must comply sooner.

Why Does It Matter?

The proposed ownership cap targets the concentration of ownership in South Korea’s crypto exchanges, where a few platforms control most trading activity. For instance, Upbit’s chairman holds 25.52% of its parent company, and Bithumb Holdings controls 73.56% of Bithumb.

This measure could reshape governance at major exchanges, requiring significant restructuring. It also highlights South Korea’s proactive stance in regulating the crypto market, potentially influencing similar actions globally.

Investor Takeaway

Reactions and Competitive Context

The proposal has sparked debate among lawmakers and industry insiders. Some argue it could weaken competition and slow innovation, particularly in a competitive technology sector. Critics caution against excessive implementation that might limit market entry and stifle growth.

Globally, no precedent exists for such a stringent ownership cap in the crypto industry, raising questions about its impact on South Korea’s competitive position in the digital asset market.

What’s Next?

The proposal is still in the discussion phase and must pass through the legislative process. A National Assembly member is expected to introduce the bill, though the specific sponsor is yet to be identified.

Additional regulatory measures are also being considered, including tighter background checks for executives and major shareholders, alongside amendments to existing financial legislation.

If adopted, these regulations could set a new standard for crypto governance, affecting market dynamics and regulatory approaches in other countries.