As part of its “Virtual Asset Phase 2 Legislation” aimed at institutionalizing the market, South Korea’s Financial Services Commission (FSC) has proposed a significant reduction in the ownership stakes held by major shareholders of leading domestic cryptocurrency exchanges. According to reports from KBS, the FSC has redefined exchanges with over 11 million active users as “core infrastructure” for virtual assets, a designation widely understood to apply to the country’s top four platforms: Upbit, Bithumb, Coinone, and Korbit. This shift in classification is seen as laying the groundwork for stricter regulatory oversight. The regulatory body has identified two critical issues in the current governance structure of these exchanges: excessive concentration of power in the hands of a few founders or major shareholders, and the disproportionate privatization of substantial transaction fee revenues. To address these concerns, the FSC has proposed introducing a major shareholder suitability review system, similar to that used for Alternative Trading Systems (ATS) in traditional securities markets. The proposal suggests capping the ownership stake of a single major shareholder at between 15% and 20%. Under current capital market laws, ATS shareholders are generally limited to a 15% stake, with exceptions allowing up to 30% only under specific conditions. If enacted, this rule would force a major restructuring of ownership at the four leading exchanges: * **Upbit (Operator: Dunamu):** Dunamu’s Chairman, Song Chi-hyung, holds approximately 25.5% of shares and would need to divest 5-10% of his holdings. * **Bithumb:** Bithumb Holdings currently owns 73% of the exchange, requiring a divestment of over 50% of its stake to comply with the proposed cap. * **Coinone:** Chairman Cha Myung-hoon holds a 54% controlling stake. Reducing this to below 20% would mean relinquishing absolute control of the company. * **Korbit:** Currently, NXC and its subsidiaries hold about 60.5% of the exchange. A potential acquisition by Mirae Asset, which is reportedly in negotiations, would also be subject to the new ownership limits. The proposal reflects the regulator’s intent to align crypto exchange governance with traditional financial institution standards, thereby mitigating systemic risk. Some analysts view the move as paving the way for established financial institutions like banks and securities firms to enter the market by acquiring divested shares. However, the plan has sparked debate. Critics argue that forcibly applying traditional stock exchange rules to the crypto asset industry may stifle innovation, infringe on property rights, and potentially lead to management instability, which could harm investor protection. There are also market concerns that prolonged regulatory uncertainty could drive Korean crypto businesses and capital to more lenient jurisdictions like Singapore or Dubai. The proposal remains part of ongoing legislative discussions, highlighting the balancing act regulators face between ensuring financial stability and fostering industry growth.