South Korea Regulator Backs Ownership Caps for Crypto Exchanges

The South Korean Financial Services Commission (FSC) has signaled strong support for implementing strict ownership caps on domestic cryptocurrency exchanges. This regulatory maneuver is intended to bolster stability and transparency within the rapidly growing virtual asset sector, aligning the industry more closely with traditional financial standards ahead of major new legislation.

Sources familiar with regulatory discussions indicate that the FSC aims to limit the maximum percentage stake that major shareholders, including founding parties and institutional investors, can hold in these exchanges. The primary rationale behind the ownership limits is to prevent undue influence by single entities, mitigate risks associated with conflicts of interest, and curb the potential for market manipulation, which is a key concern given the highly concentrated nature of the South Korean crypto market.

Currently, the local digital asset trading landscape is dominated by a few large platforms, which raises systemic risk concerns for regulators. By imposing ownership limits, similar to those applied to banks and holding companies, regulators seek to ensure more balanced and sound corporate governance within the virtual asset service providers (VASPs).

These measures are expected to be formalized as part of the enforcement decrees accompanying the Virtual Asset User Protection Act, which is slated to take full effect in July 2024. The specific percentage threshold for the caps is reportedly still under review, but the policy direction confirms Seoul’s determination to establish a robust and comprehensive regulatory framework for digital assets.

Source: South Korea regulator backs ownership caps for crypto exchanges