S. Korea Considers Ownership Caps Alternative for Crypto Exchanges

Attorney Han Seo-hee proposed regulatory alternatives to ownership caps for digital asset exchanges on April 17 at the Korea Commercial Law Association Spring Academic Conference in Seoul, according to the source material. The presentation outlined a three-step approach: strengthened major shareholder screening, enhanced internal controls, and natural ownership dispersion through initial public offerings (IPO), rather than mandatory ownership limits.

Current Regulatory Debate

South Korea’s government is currently pursuing a policy to limit major shareholder stakes in digital asset exchanges to approximately 20%, according to the source. The industry, opposition parties, and some ruling party lawmakers oppose this measure, citing concerns about innovation constraints and potential constitutional violations.

Constitutional Concerns Raised

Han argued that ownership cap regulations present two main constitutional issues. First, she identified potential violations of property rights, noting that existing operators who grew from startups to major exchanges would face forced divestment of existing holdings if retroactive ownership limits were imposed. Second, she raised equal protection concerns, pointing out that regulated exchanges like Nextrade were designed with dispersed ownership structures from inception, while digital asset exchanges were typically founder-led from establishment.

Han stated that “the ownership cap issue is a unique discussion only in Korea,” highlighting that this regulatory approach differs from international practice.

International Regulatory Comparison

Han’s analysis examined regulatory frameworks in the European Union, United States, and Singapore. According to the source, none of these jurisdictions implement ownership caps on digital asset exchange operators. Instead:

• EU (MiCA): Conducts screening of shareholders holding 10% or more; establishes mandatory governance structures
• United States: Lacks unified federal regulation; individual states apply varying frameworks (New York’s BitLicense is noted as the most stringent)
• Singapore: Implements major shareholder qualification screening and manager competency assessments through the Monetary Authority of Singapore
• Japan: Conducted task force discussions in 2025 and concluded that digital asset exchanges do not warrant the same regulatory status as securities markets or alternative trading systems (PTS), therefore declined to impose ownership restrictions

Han noted that all examined jurisdictions emphasize internal control frameworks rather than ownership limits.

Internal Controls Framework

Han proposed adopting internal control mechanisms from the financial services sector, including:

• Compliance monitoring officers with independent authority and minimum two-year tenure
• Risk management officers with prohibitions on concurrent trading or asset management duties
• Internal control committees meeting at least semi-annually
• Conflict of interest management systems with three-stage processes: identification and assessment, management through internal controls, and post-incident disclosure
• Information barriers (“Chinese walls”) to prevent information flow between departments
• Insider trading restrictions and employee transaction limitations
• Compliance monitoring programs with periodic audits and record-keeping

Han noted that some digital asset exchanges have adopted certain measures, but comprehensive adoption across the industry remains incomplete.

Staged Regulatory Approach

Han concluded by recommending a three-stage approach: First, strengthen major shareholder qualification screening; second, implement robust internal control systems comparable to financial company standards; third, encourage natural ownership dispersion through market-driven mechanisms like IPO rather than mandatory divestment.

Han stated: “Internal control system strengthening and ownership restrictions do not show clear correlation, and therefore a staged approach is necessary.” She emphasized that enhanced internal controls, combined with natural market-driven dispersion, could achieve regulatory objectives while preserving property rights protections and supporting innovation ecosystems.

FAQ

Q: What alternatives to ownership caps did Attorney Han propose? A: Han proposed three steps: strengthened major shareholder screening, enhanced internal controls systems comparable to financial companies, and natural ownership dispersion through IPO and market mechanisms. This staged approach aims to achieve regulatory goals without retroactive ownership restrictions.

Q: Do other countries implement ownership caps on digital asset exchanges? A: According to Han’s analysis, no examined jurisdictions (EU, US, Singapore, Japan) implement ownership caps on digital asset exchange operators. Instead, they use major shareholder qualification screening and internal control frameworks to manage conflicts of interest and ensure operational soundness.

Q: What constitutional issues does Han identify with ownership caps? A: Han raised two constitutional concerns: potential violations of property rights (since retroactive caps would force existing shareholders to divest), and equal protection violations (since regulated exchanges like Nextrade were designed with dispersed structures from inception, while digital asset exchanges were typically founder-led).