South Korea’s Financial Services Commission Proposes Crypto Exchange Ownership Cap
The Financial Services Commission (FSC) of South Korea has announced its intention to introduce a cap on ownership stakes in cryptocurrency exchanges, despite facing opposition from both industry stakeholders and the ruling Democratic Party of Korea (DPK). This strategic move aims to enhance governance standards in line with the increasing public role of these exchanges.
FSC Advocates for Ownership Limitations on Crypto Exchanges
On a recent Wednesday, FSC Chairman Lee Eog-weon disclosed that the regulatory body is considering capping major shareholders’ ownership in cryptocurrency exchanges at approximately 15%-20%. As reported by The Korea Times, Lee emphasized the necessity of this cap to prevent excessive concentration of ownership, which could potentially lead to conflicts of interest and compromise market integrity. He pointed out that similar restrictions are already in place for securities exchanges and other trading systems.
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The chairman further elaborated that current regulations primarily focus on anti-money laundering and investor protection. The proposed ownership cap would be integrated into the forthcoming Digital Asset Basic Act, also referred to as the Second Phase of the Virtual Asset User Protection Act. This act is designed to provide a comprehensive regulatory framework for the digital asset industry.
Under the existing system, virtual asset exchanges operate under a notification process that requires renewal every three years. The proposed transition to an authorization system would grant exchanges a more permanent operating status, aligning their governance rules with their expanded role and responsibilities, akin to public infrastructure.
A coalition of domestic crypto exchanges, including prominent names like Upbit, Bithumb, and Coinone, has expressed opposition to the proposed cap, arguing that it might stifle the growth of South Korea’s digital asset sector. Key figures such as Song Chi-hyung of Dunamu, which operates Upbit, and Cha Myung-hoon, the founder of Coinone, could be compelled to divest significant portions of their holdings if the legislation is enacted.
Additionally, the Democratic Party of Korea has voiced its concerns, noting that similar ownership caps are not common globally and could render South Korea’s regulatory framework inconsistent with international trends.
New Deadline Set for Digital Assets Regulatory Framework
According to ChosunBiz, the DPK’s Digital Assets Task Force (TF) has been actively discussing crucial aspects of the Digital Asset Basic Act. In a meeting held at the National Assembly members’ office building, attended by government officials, the ruling party did not address the ownership cap issue directly. However, they revealed their intention to introduce the framework before the Lunar New Year holiday on February 17.
Lawmaker Ahn Do-geol stated, “We plan to introduce the Digital Asset Basic Act before the Lunar New Year, aiming for a consensus with the government as much as possible.”
Instead of the “unanimous consent system” suggested by the Bank of Korea (BOK), the task force settled on a consultative approach for stablecoin authorizations, involving the BOK, the FSC, the Ministry of Economy and Finance, and the Financial Supervisory Service. The requirement for unanimity was seen as a potential hurdle, while some observers viewed the central bank’s proposal as an attempt to exert control over stablecoins.
The task force also set a minimum statutory capital for stablecoin issuers at 5 billion won, approximately $3.48 million. However, there is no agreement yet on the issuance of won-pegged stablecoins. Notably, the BOK and the FSC have been at odds over the extent of banks’ involvement in stablecoin issuance. The BOK has pushed for a consortium of banks holding at least 51% of any stablecoin issuer seeking approval, while the FSC has raised concerns about this approach.
Lee Kang-il, a DPK lawmaker on the task force, commented that “the 50%+1 share rule remains contentious as there is no consensus among government ministries.” He added that they have prepared a mediation plan and will make decisions that serve the national interest and benefit the public.
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