[Inside Chodong] The Basic Digital Asset Act Trapped by Major Shareholder Ownership Limits

Delay in Introduction of Basic Digital Asset Act
Shareholding Cap on Major Exchange Stakeholders Stalls Progress
Criticism Mounts Over Globally Unprecedented Regulation

The Basic Digital Asset Act (the so-called “second-stage” virtual asset legislation) remains stalled with no progress in sight. Earlier this month, the Financial Services Commission convened the first Virtual Asset Committee of the year and discussed the Basic Digital Asset Act, leading to expectations that legislative efforts would accelerate. However, the party-government consultative meeting originally scheduled for the 5th was postponed due to developments in the Middle East, and the meeting held on the 19th did not address the Basic Digital Asset Act. With the introduction of the bill unlikely this month and local elections approaching, there are predictions that passage within the year will be difficult.

The stated reason for the indefinite delay of the Basic Digital Asset Act is the increased volatility in domestic stock and foreign exchange markets caused by the war in the Middle East. However, the more direct reason is the issue of limiting the shareholdings of major shareholders in cryptocurrency exchanges. At the end of last year, the Financial Services Commission submitted a report to the National Assembly on the Basic Digital Asset Act, which included a proposal to cap the shareholdings of major shareholders in domestic cryptocurrency exchanges at 15–20%. This brought the issue of shareholder limits to the forefront. In its report, the Financial Services Commission pointed out that the ownership structure of major domestic cryptocurrency exchanges results in operational profits being concentrated among a small group of founders and shareholders. The Commission argued that it is necessary to establish a qualification review system for major shareholders equivalent to that for Alternative Trading Systems (ATS) under the Capital Markets Act.

The industry has pushed back, saying that such measures are unprecedented globally, but the authorities have pressed ahead. Earlier this month, the Democratic Party’s Digital Asset Task Force and the Financial Services Commission reportedly agreed to set the cap for major shareholders at 20%, but to allow exceptions, up to 34%, as determined by the Financial Services Commission through an enforcement decree. The grace period for the implementation of the shareholder limit has been set at three years after the law takes effect, and exchanges that do not meet certain market share standards will be granted an additional three-year grace period. If the shareholder limits are implemented as proposed by the government, all major domestic virtual asset exchanges will be affected, making changes to their governance structures inevitable.

No one is convinced by the authorities’ plan to restrict major shareholders. The industry and opposition parties have voiced opposition, and there are significant dissenting voices within the ruling party as well. Most legal and academic experts consider the regulation incomprehensible. Critics argue that retroactively adjusting lawfully acquired shares could violate property rights and restrict business activities. The National Assembly Research Service has pointed out that, in terms of property rights, freedom of occupation and business activity, and retroactive legislation, there is potential for the shareholder restriction to be ruled unconstitutional. Shares are considered constitutionally protected property, and the freedom to own and dispose of them must also be protected. Linking shareholder restrictions to the cancellation of business licenses could infringe on property rights. This is why the regulation has been interpreted as a measure for government control.

The problem is that the sudden focus on shareholder restrictions has caused the Basic Digital Asset Act itself to drift. The Basic Digital Asset Act is a comprehensive bill covering the issuance, distribution, disclosure, and listing of digital assets. The industry has long awaited such legislation, hoping that it would allow the sector to develop within a legal framework. Until now, the digital asset industry has not been free because of a lack of regulations, but rather has been unable to make any progress at all.

In the digital asset industry, Korea has already fallen far behind. Excessive restrictions on shareholdings could turn Korea into a “Galapagos” cut off from the global digital asset ecosystem, and this fact must not be overlooked.

This content was produced with the assistance of AI translation services.