Diverging views between Democratic Party’s Virtual Asset TF and Policy Committee
Industry backlash sparks concerns over hindering market development
Confusion is growing over whether to move forward with the Digital Asset Basic Act (the second-stage virtual asset law), which includes a provision to cap major shareholders' stakes in virtual asset exchanges at 15% to 20%. Political circles are split over the issue, while the industry is fiercely opposing it. Some are even predicting that the legislative push will be delayed.
Disagreement in politics, backlash from industry... mounting confusion
According to political and financial circles on February 9, opinions are divided in politics over whether to include the plan to restrict major shareholders' stakes in virtual asset exchanges in the Digital Asset Basic Act.
Within the ruling Democratic Party of Korea, there is a difference of opinion between the Virtual Asset Task Force (TF) and the Policy Committee. The Virtual Asset TF pushed a version of the Digital Asset Basic Act that did not include the stake cap, but the Policy Committee rejected the TF's proposal. This was because the Policy Committee accepted the position of the Financial Services Commission (FSC), which is pushing for the stake restriction. The FSC believes that, in exchanges that function as public infrastructure, excessively high ownership stakes by major shareholders can create conflicts of interest.
A staff member from the office of Assemblyman Lee Jeongmoon, who chairs the Virtual Asset TF, recently explained, "Because the TF did not accept the FSC's proposal, the FSC went to see Han Jeongae, the chair of the Policy Committee, to convey its position," adding, "Chair Han of the Policy Committee then decided in favor of the FSC proposal rather than the views of fellow lawmakers."
Separate from the ruling party's internal conflict, the main opposition People Power Party has also come out against the stake restriction. The People Power Party argues that forcing major shareholders to disperse their holdings through a cap on ownership stakes infringes on property rights and could be unconstitutional.
The backlash from the industry is also intense. The Korea Internet Corporations Association criticized the plan, saying, "The virtual asset market is an industry built by private startups that have borne the capital and risks, not by the government," and, "Introducing regulations ex post, after the market has already formed, and demanding forced share sales is a clear violation of private property rights and undermines the principle of protecting legitimate expectations under the law."
The Korea Fintech Industry Association stated, "Rather than dispersing ownership, we ask that you create a policy environment where corporate governance can be improved through market-friendly and voluntary measures, such as strengthening market monitoring by encouraging initial public offerings (IPOs), introducing accountability structures, imposing environmental, social and governance (ESG) obligations, and reinforcing the independence of outside director appointment procedures."
Chief Executive Officer Oh Kyungseok of Dunamu, Chief Executive Officer Lee Jaewon of Bithumb, and the heads of three other exchanges conveyed their concerns during a meeting with Chairman Lee. All major shareholders of the exchanges currently hold stakes of at least 15%, meaning they would have to dispose of shares if the proposal is adopted. As of last year, at Upbit operator Dunamu, Chairman Song Chi-hyung and related parties held 28.8%; at Bithumb, Bithumb Holdings held 73.6%; at Coinone, Chief Executive Officer Cha Myunghoon held 53.4%; at Korbit, Nexon holding company NXC and its subsidiaries held 60.8%; and at Gopax, global virtual asset exchange Binance held a 67.5% stake.
"Stake limits could hinder industry development"
Some warn that including stake caps in the Digital Asset Basic Act could hinder the development of the virtual asset industry. After meeting with the five exchange heads, a staff member from Chairman Lee's office said, "If only our exchanges are subject to regulation, we will lose competitiveness and, in the end, companies like Binance could dominate the Korean market," adding, "It is similar to the case of foreign company Netflix."
Critics also argue that the plan does not align with global standards. The advisory panel to the Virtual Asset TF pointed out, "There are virtually no global precedents for ex post legislation that restricts existing trading frameworks and governance structures," and, "The domestic virtual asset market is the result of repeated rises and falls by countless entrepreneurs and companies, and stake cap measures are an administrative, convenience-driven form of regulation that does not fit an era of convergence in which the boundaries between finance and industry are breaking down."
Some also contend that the conflicts of interest feared by the FSC can be adequately supervised by the financial authorities. Hwang Seokjin, a professor at the Graduate School of International Information Security at Dongguk University and an advisory member of the Virtual Asset TF, said, "As seen when the Financial Intelligence Unit (FIU) imposed a 35.2 billion won administrative fine on Upbit in November last year, supervision and sanctions are already being sufficiently carried out by the financial authorities," adding, "It is difficult to understand why the stake cap card has been brought out when oversight is already in place over areas where problems could arise."
The government and the Democratic Party had aimed to have the relevant bill passed at a plenary session of the National Assembly by next month, but there are growing concerns that the legislative push could be delayed amid the mounting confusion. An industry official said, "The Digital Asset Basic Act needs to pass quickly to foster the development of the virtual asset industry, but there is a high possibility that legislation will be delayed over whether to include the stake cap," adding, "The longer this drags on, the greater the sense of anxiety will grow in the industry."
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