The Financial Services Commission (FSC) of South Korea is pushing to limit the shareholding percentage of major shareholders in digital asset exchanges. Although this is intended to improve the concentrated ownership structure in individual hands, concerns are emerging about the potential market repercussions due to such a government-enforced measure. The top five digital asset exchanges have collectively opposed this move, fearing significant aftereffects on the digital asset market.
There is significant market concern that this signal of forced divestiture of shares by the state may lead investors to exit the domestic market. The move could cause ripples in growth plans that involve strategic alliances between existing financial and digital asset companies, such as Naver and Mirae Asset. Critics argue that this could lead to the undervaluation and fire sales of exchange assets, thereby weakening M&A efforts.
According to the FSC’s report submitted to the Democratic Party last month, the aim is to establish a major shareholder suitability review system for the domestic ‘big four’ digital asset exchanges, similar to the standards applied to alternative trading systems (ATS) under the Capital Market Act. This involves restricting the ownership percentage of a single major shareholder of virtual asset service providers (VASPs) to between 15% and 20%, comparable to the existing ATS regulations under the Capital Market Act.
The main issue with such ownership limits is the potential consequences for the market. By signaling forced structural changes in private enterprises’ ownership, there are fears of significant market contraction. The Digital Asset Exchange Association (DAXA), which includes Upbit, Bithumb, Coinone, Korbit, and Gopax, stated that artificially altering the ownership structure of private companies could undermine the foundations of the organically grown digital asset industry, potentially leading to its shrinkage.
DAXA highlighted the risk of user migration to overseas exchanges due to loss of global competitiveness if forced liquidation of shares by the state becomes a reality. They expressed concerns that such mandatory dispersal of shares could dilute responsibility for safeguarding customer assets, thereby compromising user protection.
Furthermore, these ownership restrictions are expected to impact companies like Naver and Mirae Asset, who are pursuing the acquisition of Dunamu (operator of Upbit) and Korbit, respectively. Naver’s financial affiliate, Naver Financial, which holds a 100% stake in Dunamu, would be affected by the major shareholder cap, necessitating a restructure of its shareholding to comply with regulations.
Professor Kang Hyung-gu from Hanyang University pointed out the dual risk the market could face—a ‘fire sale’ of assets as buyers aim to drive down prices due to anticipated forced sales, and the potential invalidation of the M&A framework predicated on robust ownership and business management. Thus, he suggested that instead of capping ownership percentages, strengthening responsibilities for powerful shareholders might be a more effective approach.
Jo Won-hee, chairman of the Korea Web3 Blockchain Association and CEO at DLG Law Firm, voiced concerns that imposing such limits may hinder operational flexibility, business model development, and overseas expansion. He criticized these ownership restrictions as redundant, especially since existing regulations have already broadly defined and regulated virtual asset providers.