South Korea’s Legislative Research Service Says Crypto Exchange Ownership Caps May Conflict With Holding Company Rules
Summary
- It said that if ownership caps for major shareholders of cryptocurrency exchanges are introduced, authorities will need to review how they interact with holding company ownership rules under antitrust law.
- It said discussions over the Digital Asset Basic Act include a plan to cap exchange major shareholders at 20% or less in principle, while allowing stakes of up to 34% under certain conditions.
- The Research Service said future legislation needs to set regulatory levels by also considering industry competitiveness, investment incentives, corporate governance, and how the framework fits with existing regulations.
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Capping the ownership stakes of major shareholders in virtual-asset, or cryptocurrency, exchanges would require a review of how such limits interact with South Korea’s current holding company shareholding rules under antitrust law, according to an analysis.
Maeil Business Newspaper reported on Sept. 15 that the National Assembly Research Service, in a report submitted to the office of Democratic Party lawmaker Park Min-kyu, said a holding company that brings a crypto exchange into its group as a subsidiary could face difficulty satisfying two different ownership thresholds at the same time.
Under the current Monopoly Regulation and Fair Trade Act, a holding company must own at least 50% of an unlisted subsidiary. It must hold at least 30% of a listed subsidiary and at least 20% of a subsidiary under a venture holding company.
By contrast, discussions on the proposed Digital Asset Basic Act have included a plan to limit the stake of a major shareholder in a crypto exchange to 20% or less in principle, while allowing as much as 34% if certain conditions are met.
The Research Service said the two sets of rules are formally structured in a way that could create conflict. Still, it said they cannot be broadly viewed as conflicting in every case because their regulatory purposes and targets differ.
The Fair Trade Commission has expressed a similar view. Shareholding rules under antitrust law are intended to ensure accountable governance within a holding company system, while caps on exchange ownership are aimed at promoting market fairness through dispersed ownership, it said.
The report also cited the business combination involving Naver Financial and Dunamu. The Research Service said Naver Financial does not currently qualify as a holding company, meaning the holding company rules under antitrust law do not directly apply for now. If its governance structure changes in the future and it meets the requirements to become a holding company, the relationship with exchange ownership caps could become a live issue.
The Research Service recommended that lawmakers, in future legislation, set the regulatory level by considering not only user protection and market fairness but also industry competitiveness, investment incentives, corporate governance and the relationship with existing regulations.
