South Korea plans to limit the shareholding of major shareholders in the four major virtual asset exchanges, and Upbit, Bithumb may face significant governance structure reforms.

The Korean government is planning to take action to reshape the governance structure of cryptocurrency exchanges. Financial regulators have proposed restrictions on the shareholding ratios of major shareholders in the four largest virtual asset exchanges, sparking high concern within the industry regarding management rights and market stability.
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According to the latest report from Korea’s public broadcasting media “KBS,” the Financial Services Commission (FSC) has proposed a significant regulatory recommendation in the “Basic Law on Digital Assets” submitted to the National Assembly. The proposal aims to limit the shareholding ratios of major shareholders in the four domestic virtual asset exchanges Upbit, Bithumb, Coinone, and Korbit, suggesting a cap between 15% and 20%.

The FSC pointed out that these exchanges are currently regarded as “core infrastructure” within the virtual asset circulation system, with user numbers reaching tens of millions. However, their governance structures remain highly concentrated in the hands of a few founders and major shareholders, posing risks to market fairness and user protection.

Regulators believe that under the current framework, the large profits generated through fees and other means are excessively concentrated among specific individuals or related companies. It is necessary to establish a more stringent “Major Shareholder Eligibility Review Mechanism,” similar to the standards for Alternative Trading Systems (ATS) in the Capital Markets Act, to enhance transparency and disperse management rights.

Shareholding restrictions if implemented could impact exchange governance and M&A plans

If the shareholding restrictions are ultimately legislated, the existing ownership structures of many large Korean exchanges could face drastic adjustments.

For example, Upbit, which holds the largest market share, is operated by Dunamu. Chairman Song Chi-hyun currently owns about 25% of the shares. If the new rules are enforced, Song Chi-hyun may need to sell up to approximately 10% of his holdings. This would not only affect his control over the company but could also influence Dunamu’s major strategic initiatives.

Related reading: Naver to acquire Dunamu, the parent company of Upbit, for $10.3 billion! Birth of Korea’s “PayPal + Coinbase”?

On the other hand, the impact on Bithumb and Coinone could be even more significant. Bithumb is currently owned about 73% by Bithumb Holdings. If required to meet the share dispersion standards, it will likely face substantial share sales pressure, potentially shaking up the existing governance structure. Coinone’s chairman holds as much as 54% of the shares, and if the new rules are applied, maintaining current management rights would become nearly impossible.

Industry concerns: balancing risk prevention with operational stability

Regarding the FSC’s proposal, there have been differing voices within Korea’s virtual asset industry. Some industry players believe that the government’s move has exceeded market guidance levels, potentially constituting overreach, which could weaken corporate flexibility and innovation.

Others point out that the second phase of legislation for the “Basic Law on Digital Assets” was originally intended to promote industry development and strengthen investor protection. However, if large shareholders are forced to release significant holdings, it could lead to unstable management rights and infringe on private property rights. How to balance “market order” and “corporate governance freedom” will be a major challenge in the legislative process.