Scrutiny Grows Over Proposed Stake Caps for Crypto Exchange Shareholders in South Korea

Title: Scrutiny Grows Over Proposed Stake Caps for Crypto Exchanges in South Korea

SEOUL, South Korea — As Bitcoin prices flicker on screens at the Bithumb Lounge in Seocho District, a heated debate is brewing over the South Korean government’s proposal to cap major shareholder stakes in cryptocurrency exchanges. Industry experts, legal professionals, and politicians are raising concerns that the plan lacks sufficient legal grounding and fails to provide a compelling rationale for such drastic measures.

The proposed regulation, which aims to limit the largest shareholder’s stake to between 15% and 20%, stems from the Financial Services Commission’s classification of crypto exchanges as “quasi-financial institutions.” This designation is based on their roles in holding client assets, facilitating transactions, and managing listings. However, critics argue that the measure could stifle innovation and growth in an already volatile market.

“This regulation requires thorough review before any legislation is passed,” warned Attorney Kim Hyo-bong of Bae, Kim & Lee. With over a decade of experience at the Financial Supervisory Service, Kim emphasized that the unique structure of crypto exchanges—unlike banks, they do not create credit or rely on public bailouts—weakens the justification for ownership limits.

Kim cautioned that abrupt regulatory changes could lead to diminished investment and entrepreneurship, potentially pushing domestic firms to relocate abroad and increasing reliance on foreign operators. “Policymakers must consider the foreseeability of these changes and whether the public interest justifies such restrictions,” he added.

Echoing these sentiments, Kim Yoon-kyung, a professor at Incheon National University, noted that while many countries conduct thorough background checks on crypto executives and shareholders, it is rare to impose legal limits on equity ownership. “Forced dilution could create management uncertainty and trigger control disputes, ultimately undermining competitiveness and innovation,” he said.

The ruling Democratic Party of Korea (DPK) is divided on the issue, with party leadership generally supporting the government’s tougher stance following a recent incident involving Bithumb. In February, the exchange mistakenly credited users with 2,000 bitcoins each instead of distributing bitcoins worth 2,000 won ($1.40), resulting in an erroneous payout of 620,000 bitcoins—far exceeding the exchange’s reported holdings. This incident has intensified calls for stronger governance and oversight.

In contrast, the DPK’s digital asset task force argues for enhanced background checks on major shareholders rather than ownership caps. They assert that reducing ownership stakes does not necessarily improve public interest safeguards and could destabilize management in a startup-driven industry.

Rep. Ahn Do-geol of the DPK acknowledged that several issues remain unresolved, suggesting that a bill is unlikely to be introduced this month. “The task force will continue refining its proposal through mid-March. While there is general agreement on the direction of regulation, the party has yet to finalize its official stance,” he stated.

As the debate continues, the future of cryptocurrency regulation in South Korea hangs in the balance, with industry stakeholders and policymakers alike watching closely to see how the government will navigate this complex landscape.