BitcoinWorld FSC Crypto Exchange Regulations: South Korea’s Bold Governance Overhaul Targets Major Shareholders SEOUL, South Korea – February 2025 – South Korea’s Financial Services Commission (FSC) is pursuing strict new regulations to overhaul the governance structure of the country’s four largest virtual asset exchanges, according to a recent KBS report. The proposed FSC crypto exchange regulations represent a significant shift in how digital asset platforms operate within one of Asia’s most active cryptocurrency markets. These measures form part of the forthcoming “Virtual Asset Phase 2 Bill,” which also addresses stablecoin issuance requirements and broader market legalization frameworks. Understanding the FSC’s Proposed Governance Framework The Financial Services Commission has identified a critical structural issue within South Korea’s cryptocurrency exchange ecosystem. Specifically, the commission notes that a small number of founders and shareholders currently exercise excessive control over exchange operations. This concentration of power creates potential conflicts of interest and systemic risks. Consequently, the FSC plans to establish a major shareholder eligibility review system comparable to the framework governing Alternative Trading Systems (ATS) under the existing Capital Market Act. Most notably, the commission has proposed limiting a major shareholder’s ownership stake to between 15% and 20%. This threshold represents a substantial reduction from current ownership structures. The regulatory approach mirrors established financial market principles, applying traditional securities governance standards to the evolving digital asset sector. This alignment demonstrates South Korea’s methodical integration of cryptocurrency markets into its formal financial regulatory architecture. Immediate Impact on South Korea’s Largest Crypto Exchange If implemented, the government’s plan would directly impact Dunamu, the operator of South Korea’s dominant Upbit exchange. Dunamu Chairman Song Chi-hyung currently holds approximately 25% of the company’s shares. Under the proposed regulations, he would need to divest between 5% and 10% of his ownership stake. This forced reduction comes at a particularly sensitive time for the exchange operator. Dunamu is currently pursuing a de facto merger with Naver Financial through a comprehensive stock swap arrangement. The proposed ownership cap introduces a significant variable into these complex negotiations. Market analysts suggest the timing creates additional pressure on both parties to restructure their agreement. The regulatory intervention highlights how governance reforms can influence corporate strategy and market consolidation trends within the cryptocurrency sector. Comparative Analysis: Global Crypto Exchange Governance South Korea’s proposed regulations place it among a growing number of jurisdictions implementing ownership restrictions for cryptocurrency exchanges. The following table illustrates how different regions approach exchange governance: Jurisdiction Ownership Restrictions Primary Regulatory Goal South Korea (Proposed) 15-20% major shareholder cap Prevent excessive control, ensure fair governance Japan Requires diversified ownership structures Financial stability and consumer protection United States No specific caps but strict compliance requirements Anti-money laundering and securities compliance European Union MiCA regulations focus on operational standards Market integrity and investor protection This comparative perspective reveals South Korea’s particularly stringent approach to ownership concentration. The FSC’s proposal exceeds requirements in many other major markets, reflecting the country’s cautious stance following previous cryptocurrency market incidents. The regulatory philosophy prioritizes structural safeguards over purely operational compliance. The Virtual Asset Phase 2 Bill: Broader Regulatory Context The ownership cap proposal exists within the comprehensive “Virtual Asset Phase 2 Bill” currently under development. This legislative package addresses multiple aspects of South Korea’s cryptocurrency regulatory framework: Stablecoin Issuance Requirements: Establishing reserve backing and disclosure standards Market Legalization: Formalizing exchange operations within financial law Investor Protection Measures: Enhancing safeguards for retail participants Anti-Market Manipulation Rules: Preventing abusive trading practices The bill represents the second major phase of South Korea’s cryptocurrency regulation development. Phase 1 primarily focused on anti-money laundering compliance and basic operational standards. Phase 2 advances to more sophisticated governance and market structure considerations. This evolutionary approach allows regulators to build upon initial frameworks while adapting to market developments. Historical Precedents and Regulatory Evolution South Korea’s regulatory journey with cryptocurrency exchanges began with the 2017-2018 period when authorities implemented real-name account requirements. Subsequently, the country established specific licensing frameworks for exchanges. The current proposals continue this trajectory toward greater institutionalization. The reference to Alternative Trading Systems (ATS) governance provides a clear template for implementation. ATS regulations under South Korea’s Capital Market Act require: Transparent ownership disclosure Independent governance structures Regular regulatory reporting Conflict of interest management protocols Applying these established standards to cryptocurrency exchanges represents a logical extension of existing financial regulation. This approach minimizes regulatory arbitrage between traditional and digital asset markets. It also provides exchanges with familiar compliance frameworks rather than entirely novel requirements. Potential Market Impacts and Industry Response The proposed ownership caps could trigger several significant market developments. First, forced divestment by major shareholders like Dunamu’s chairman would increase floating shares available for institutional investment. Second, the regulations might accelerate consolidation among smaller exchanges facing compliance costs. Third, governance reforms could enhance South Korean exchanges’ international credibility and competitiveness. Industry responses have been cautiously analytical. Exchange operators recognize the regulatory direction while assessing operational implications. Some market participants have suggested phased implementation periods to minimize disruption. Others have proposed grandfathering provisions for existing ownership structures. The FSC has indicated willingness to consider transitional arrangements during legislative consultations. Market data indicates South Korea represents approximately 10% of global cryptocurrency trading volume. Regulatory changes therefore carry significance beyond domestic markets. International exchanges operating in South Korea would face identical requirements, creating potential competitive rebalancing. The governance standards might eventually influence regulatory approaches in other Asian markets observing South Korea’s implementation. Conclusion South Korea’s proposed FSC crypto exchange regulations represent a substantial advancement in digital asset market governance. The major shareholder cap proposal addresses fundamental structural concerns while aligning cryptocurrency exchanges with traditional financial market standards. These FSC crypto exchange regulations demonstrate South Korea’s continued leadership in developing comprehensive cryptocurrency frameworks. The Virtual Asset Phase 2 Bill, when implemented, will likely establish new benchmarks for exchange governance globally. Market participants should monitor legislative developments closely, as the final regulations will shape South Korea’s cryptocurrency landscape for years to come. FAQs Q1: What exactly is the FSC proposing for crypto exchange shareholders? The Financial Services Commission proposes limiting major shareholders’ stakes in South Korea’s top cryptocurrency exchanges to between 15% and 20% of ownership. This represents a significant reduction from current levels where some founders hold 25% or more. Q2: How will this affect Upbit exchange specifically? Dunamu, Upbit’s operator, would need its chairman Song Chi-hyung to reduce his approximately 25% stake by 5-10 percentage points. This comes during sensitive merger discussions with Naver Financial, potentially complicating those negotiations. Q3: When might these regulations take effect? The proposals are part of the forthcoming “Virtual Asset Phase 2 Bill” currently under development. While no specific timeline exists, industry observers anticipate potential implementation within 12-18 months following legislative approval and possible transitional periods. Q4: Are other countries implementing similar ownership caps? While several jurisdictions regulate cryptocurrency exchanges, South Korea’s specific percentage-based ownership cap proposal appears particularly stringent. Japan has diversified ownership requirements, but not explicit percentage limits like the 15-20% range proposed in South Korea. Q5: What’s the broader purpose of these governance reforms? The FSC aims to prevent excessive control by small groups of founders or shareholders, reduce conflicts of interest, enhance market stability, and align cryptocurrency exchanges with governance standards applied to traditional financial institutions under South Korea’s Capital Market Act. This post FSC Crypto Exchange Regulations: South Korea’s Bold Governance Overhaul Targets Major Shareholders first appeared on BitcoinWorld .
