South Korea’s Crypto Exchange Investigation and Regulatory Developments
In a significant development within South Korea’s cryptocurrency sector, executives from the nation’s leading crypto exchanges have been summoned by law enforcement. This move comes amidst allegations of favoritism and undue influence involving an independent lawmaker. The unfolding situation highlights the complexities of regulatory and ethical challenges in the rapidly evolving digital currency arena.
Dunamu and Bithumb Executives Under Scrutiny
The Seoul Metropolitan Police Agency’s Public Crimes Investigation Unit has called upon former Dunamu CEO Lee Seok-woo and officials from Bithumb to provide testimony. This is part of an investigation into accusations leveled against independent lawmaker Kim Byung-kee. According to reports from local media, the police are probing whether Kim attempted to secure a job for his second son at Dunamu, the operator of South Korea’s largest cryptocurrency platform, Upbit, during a dinner in November 2024.
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Former aides of Kim have alleged that the lawmaker, previously a prominent figure in the Democratic Party, demonstrated a keen interest in crypto-related firms, particularly Dunamu and Bithumb. These companies rank as the two largest crypto exchanges in South Korea. After failing to secure a position for his son at Dunamu, Kim allegedly facilitated his employment at Bithumb, where he worked for six months starting January 2025. A former aide revealed that Kim initially sought to have his son hired elsewhere, but eventually arranged for his employment at Bithumb.
Reports further suggest that Kim directed his aides to undermine Bithumb’s competitors after meeting with former CEO Lee and following a job opening at Bithumb. Kim purportedly criticized Dunamu’s dominant market position, calling it “problematic.”
The lawmaker is accused of favoring the crypto exchange where his son was employed by persistently questioning Dunamu in a confrontational manner during Political Affairs Committee meetings. He argued to then-Financial Services Commission (FSC) Chairman Kim Byung-hwan that a significant issue facing Korea’s virtual asset exchanges is the monopolistic control by a single entity. Reports also highlighted a Financial Intelligence Unit (FIU) investigation that exposed nearly 700,000 cases where Upbit allegedly failed to adhere to proper Know-Your-Client (KYC) protocols.
Exploring Ownership Limits for Crypto Exchanges
This investigation coincides with the FSC’s exploration of capping ownership in crypto exchanges. As reported by industry sources, FSC Chairman Lee Eog-weon has indicated that the agency is considering a proposal to limit major shareholders’ ownership stakes in these exchanges to around 15%-20%.
Lee emphasized the importance of restricting the ownership stakes of controlling shareholders to promote fair competition and prevent monopolistic practices. Current regulations primarily target anti-money laundering measures and investor protection, lacking comprehensive ownership restrictions.
However, the proposal has met resistance from industry stakeholders and the ruling Democratic Party of Korea (DPK). A coalition representing domestic exchanges, including Upbit, Bithumb, and Coinone, has voiced opposition, arguing that such limitations could stifle the growth of South Korea’s burgeoning crypto industry. If enacted, key figures like Dunamu’s chairman, Song Chi-hyung, and Coinone’s founder, Cha Myung-hoo, would need to significantly reduce their holdings to comply with the proposed cap.
Members of the Democratic Party have also expressed concerns, noting that similar ownership restrictions are uncommon globally and could render South Korea’s regulatory framework inconsistent with international standards, potentially deterring investment.
The proposed ownership cap is slated for inclusion in the forthcoming Digital Asset Basic Act, also known as the second phase of the Virtual Asset User Protection Act. This legislation aims to establish a comprehensive regulatory framework for the entire cryptocurrency sector.
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