South Korea to Unveil Digital Asset Basic Law With Strict Exchange Rules

The South Korean Financial Services Commission (FSC) is finalizing the draft of the much-anticipated Digital Asset Basic Law, with an official public release expected before the end of November 2024. This comprehensive regulatory framework aims to stabilize the local cryptocurrency market by introducing stringent ownership caps for trading platforms and transitioning the industry from a simple reporting system to a rigorous licensing regime. The move represents a significant shift in how the East Asian nation governs its digital economy, focusing on investor protection and corporate transparency.

Structural Reforms for Virtual Asset Exchanges

A central pillar of the new legislation is the imposition of a 15-20% ownership limit on major shareholders of virtual asset exchanges. This measure is designed to prevent the concentration of power within a few individuals or entities, potentially mitigating conflicts of interest. To facilitate a smooth transition, the government plans to grant existing platforms a grace period of one to two years to restructure their equity holdings. Additionally, the current declaration-based entry system will be replaced by a formal licensing system, requiring operators to meet higher financial and operational standards before they can facilitate trades for popular assets like Bitcoin (BTC) or Ethereum (ETH).

Stability and Liability Protections

The draft also addresses the growing role of stablecoins and the technical vulnerabilities of market infrastructure. According to the proposals:

• Stablecoin issuance is expected to be restricted to consortia led by established banks to ensure liquidity and fiat backing.
• Operators may be held liable for compensation in the event of hacking or system failures, even if no direct negligence is proven.
• Substantive violations regarding the holding of virtual assets could serve as immediate grounds for business suspension.

These measures follow a significant technical error at Bithumb earlier this year, which highlighted the need for more robust incident response mechanisms in the high-frequency trading environment.

The Digital Asset Basic Law marks South Korea's most decisive step toward integrating blockchain technology into the formal financial system while maintaining strict oversight. By holding operators accountable for system errors and regulating stablecoin issuers through traditional banking structures, the FSC seeks to prevent the recurrence of large-scale market disruptions. As the government prepares to release the full draft, stakeholders in the blockchain and FinTech sectors are closely monitoring how these changes will impact the competitive landscape of one of the world's most active crypto markets.