South Korea Proposes Crypto Exchange Ownership Caps, Reshaping Market Structure

South Korea's Crypto Exchange Ownership Overhaul

South Korea's Financial Services Commission (FSC) has proposed a regulatory overhaul targeting the ownership structure of the country's top cryptocurrency exchanges. The proposal, announced in late December, aims to limit major shareholders to 15-20% ownership stakes. This move marks a significant shift in how exchanges are structured, with founders and controlling shareholders of the top five exchanges required to divest large portions of their holdings.

The FSC's initiative is part of the broader Digital Asset Basic Act, which seeks to reclassify crypto exchanges as core infrastructure. This reclassification aligns them with Alternative Trading Systems under the Capital Markets Act, subjecting them to stricter regulatory scrutiny. The timing of the announcement—just before the new year—has left many industry participants in a state of uncertainty.

The proposal has drawn mixed reactions from the market. While supporters argue it will improve governance and transparency, critics warn of potential market instability and stifled innovation. The impact is already being felt, with major transactions such as Naver's merger with Dunamu and Mirae Asset's acquisition of Korbit now under threat.

Why the Move Happened

The FSC cited concerns over concentrated control by a few individuals in the crypto market. This control, it argues, undermines fair governance and creates risks for market stability. By limiting ownership stakes, the regulator aims to ensure that no single entity can exert disproportionate influence over exchange operations.

The FSC also highlighted the need to align crypto exchanges with traditional financial institutions. This includes implementing a shareholder qualification system that mirrors those used in the securities market. The move is expected to bring greater accountability and reduce the privatization of profits that currently benefits a small group of stakeholders.

How Markets Responded

The market has responded with both concern and skepticism. For example, Upbit's chairman holds 25.5% of the exchange and may need to sell 5-10% of his shares. Bithumb Holdings owns 73% of Bithumb and will need to divest over half of its stake. These changes could fundamentally alter the ownership and control structures of these exchanges.

Coinone's chairman, who holds 54% of the exchange, will also need to reduce his stake significantly. Korbit's current majority holders, the NXC group, own 60.5% and face similar constraints. These forced divestitures raise concerns about finding buyers for large stakes and the potential impact on share prices.

What Analysts Are Watching

Industry representatives have raised concerns that the proposal could be seen as excessive regulation. They argue that it infringes on property rights and could stifle innovation. Some analysts warn that forced divestments may lead to management instability and could even drive businesses to more crypto-friendly jurisdictions.

The FSC has emphasized that the proposal is not final and that details, including ownership thresholds, remain under discussion. Legal experts suggest a transition period of 5-10 years could be granted to allow gradual compliance. This period could provide clarity for market participants and help mitigate potential disruptions.

Analysts are also watching how the proposal interacts with South Korea's broader regulatory framework. The country is still working through its stablecoin regulations, with the Bank of Korea pushing for stricter oversight. These developments could further shape the regulatory environment and influence how the crypto market evolves in 2026.