South Korea’s New Regulations: Crypto Exchange Owners Face Share Ownership Limits

South Korea to Enforce Ownership Limits on Major Cryptocurrency Exchanges

In a significant move to regulate its burgeoning cryptocurrency market, the South Korean government is set to impose strict ownership restrictions on the country’s largest cryptocurrency exchanges under the newly proposed Digital Asset Framework Act. The Financial Services Commission (FSC) aims to curb excessive control by a handful of shareholders, a decision that could reshape the landscape of the crypto industry in South Korea.

New Regulations Targeting Major Players

Documents obtained by KBS from the National Assembly reveal that exchanges with over 11 million users, including giants like Upbit, Bithumb, Coinone, and Korbit, are now classified as “core infrastructure” for virtual asset distribution. This classification underscores the government’s recognition of the critical role these exchanges play in the financial ecosystem.

Under the proposed legislation, individual ownership of voting shares will be capped between 15% and 20%. Currently, the Capital Market Act allows for a maximum of 15% ownership, with exceptions up to 30% only granted under specific circumstances. The FSC has expressed concerns that a small number of founders and shareholders wield excessive control over exchange operations, leading to concentrated profits that benefit only a few individuals.

Implications for Current Exchange Owners

For existing exchange owners, the new rules present a daunting challenge. Upbit, which commands the largest market share in South Korea, is operated by Dunamu, where Chairman Song Chi-hyung currently holds about 25% of the company. Under the new regulations, he would be required to divest between 5% and 10% of his shares.

Bithumb Holdings, which owns a staggering 73% of Bithumb exchange shares, faces an even more drastic situation. The proposed regulations would compel the company to sell off more than half of its stake, potentially altering the control dynamics within the company. Similarly, Coinone’s Chairman Cha Myung-hoon, who holds 54% of the company, would need to offload over 34% of his holdings to comply with the new limits.

Industry Pushback and Concerns

The proposed ownership restrictions have sparked backlash from cryptocurrency industry representatives, who argue that the government is overstepping its bounds and infringing on property rights. Critics contend that while the intent behind the regulations may be to foster growth and protect consumers, the execution could undermine both objectives.

There are also concerns about the potential market impact of large-scale sell-offs. If significant amounts of exchange stock flood the market simultaneously, it could lead to a decline in share prices, adversely affecting current minority shareholders. Additionally, the lack of clarity regarding whether foreign companies will be permitted to purchase these shares raises further questions about the future of investment in South Korea’s crypto market.

A Complex Regulatory Landscape

As South Korea navigates its regulatory framework, the country is also grappling with broader issues surrounding cryptocurrency legislation. The Bank of Korea has proposed that only consortium structures with banks holding at least a 51% majority stake be allowed to issue stablecoins, further complicating the regulatory environment.

Political tensions are also rising, with Kim Byung-ki, the floor leader of the ruling Democratic Party, facing scrutiny over allegations of bias against Upbit, coinciding with his son’s internship at competitor Bithumb.

As South Korea heads into 2026, the future of its cryptocurrency market remains uncertain, with the FSC’s proposed regulations poised to reshape the industry landscape. Stakeholders are left to ponder the implications of these changes, as the government seeks to balance regulation with innovation in a rapidly evolving financial landscape.