PROD News Article - Excerpted from Breaking News

Government moves to cap controlling shareholders’ stakes…13 years after the first domestic exchange was established

Shift from registration to licensing

Public-interest function likely to be significantly strengthened

De facto easing of the separation of finance and industry principle

Encouraging equity participation by existing financial firms

Direct hit to Dunamu, Bithumb and others

Spillover to exchange M&A

The government is pushing a plan to limit the stakes of controlling shareholders at domestic virtual-asset exchanges, where trading volumes exceed 1,000 trillion won. It marks a sweeping overhaul of governance structures 13 years after the first virtual-asset exchange was established in Korea. With as many as 11 million exchange users, the aim is to strengthen the public-interest function through “dispersed ownership.” As all five major domestic exchanges fall within the scope of the initiative, it is also expected to become a variable in major deals by Naver and Mirae Asset, which are separately pursuing Dunamu and the acquisition of Korbit.

Controlling shareholders’ stake capped at up to 20%

According to the industry on the 31st, a proposal under serious review for the Financial Services Commission’s Digital Asset Basic Act would limit controlling shareholders’ stakes in virtual-asset exchanges to 15–20%. The plan is to redefine virtual-asset exchanges as public infrastructure on a level comparable to alternative trading systems (ATS). Under the current Capital Markets Act, an ATS may not own more than 15% of voting shares, including holdings by related parties. Only when financial companies, public funds and the like receive approval from the FSC may they exceptionally hold more than 15%. Nextrade is owned in equal 6.64% stakes by seven securities firms, including Korea Investment & Securities and Mirae Asset.

The government’s move to overhaul virtual-asset exchange governance is seen as an effort to fix the current structure in which a small number of founders or shareholders exert excessive influence over overall exchange operations. It is also intended to break the market structure dominated by the top two players, Upbit and Bithumb, and to foster an ecosystem in which a variety of operators can enter and compete fairly.

To that end, a shift from the current registration regime to a licensing regime is being cited as a key pillar. Until now, oversight and control have relied on indirect mechanisms via banks that provide real-name accounts, without direct licensing or governance reviews by financial authorities. If the law is enacted, exchanges are expected to be required to obtain a business license from financial authorities in order to operate. In that process, major criteria are expected to include fitness-and-propriety reviews of controlling shareholders and requirements for dispersed ownership.

The “separation of finance and industry” principle, which has restricted the combination of traditional finance and virtual-asset businesses, is likely to be eased. That is because it would be difficult to ensure market stability and effective supervision during ownership dispersion without the participation of regulated financial institutions. If combined with the industry-promotion measures expected to be included in the bill, it could also help upgrade Korea’s digital-asset market—currently centered on retail trading—toward areas such as institutional investment, real-world asset tokenization (RWA) and security tokens (STO). A financial industry official said, “The exchanges have grown into adults in size, but their governance and user-protection systems are still at a child’s level,” adding, “It’s time for fundamental change.”

Stake reductions likely unavoidable

To continue operating after the law takes effect, the largest shareholders of Korea’s five won-denominated virtual-asset exchanges will have to sell down their stakes. At Dunamu, which operates Upbit, Chairman Song Chi-hyung is the largest shareholder with a 25.52% stake. At Bithumb, Bithumb Holdings owns 73.56%. At Coinone, CEO Cha Myung-hoon, the founder, holds 53.44% including stakes held via his private company; at Korbit, NXC holds 60.5%. In the case of Gopax, the stake held by overseas exchange Binance is 67.45%. In addition to the largest shareholder at each exchange, there are multiple major shareholders holding more than 20%. A reduction in their stakes is unavoidable.

This is why there is growing speculation that Naver and Mirae Asset’s plans to bring Dunamu and Korbit into their respective groups could face disruptions. Naver said it will make Dunamu a second-tier subsidiary through a stake swap between its subsidiary Naver Pay and Dunamu. Because the structure would have Naver Pay holding 100% of Dunamu, it would run afoul of the cap on controlling shareholders’ stakes. As a result, the equity structure is likely to need redesigning.

The same applies to Mirae Asset, which is planning to acquire Korbit. Mirae Asset signed a memorandum of understanding (MOU) to acquire stakes held by Korbit’s largest shareholder NXC and second-largest shareholder SK Planet (31.5%). However, if the regulations materialize, substantial constraints are expected on Mirae Asset’s ability to take management control of Korbit. A financial industry official said, “A sufficient grace period can be granted in the course of shifting to a licensing regime,” adding, “Stake adjustments are also likely to proceed in stages accordingly.”

Cho Mi-hyun / Seo Hyung-kyo, reporters mwise@hankyung.com