The reason the Financial Services Commission seeks to cap a virtual asset exchange's controlling shareholder equity at around 15%–20% is to have traditional financial institutions such as banks and securities firms participate as shareholders to check a controlling shareholder's unilateral management.
In the virtual asset industry, major accidents occur from time to time, and most are caused by poor internal controls. In Nov. 2022, FTX in the United States, then the world's No. 3 virtual asset exchange, went bankrupt, wiping out tens of trillions of won in a matter of days, and the cause was the founder's fraud and embezzlement. Sam Bankman-Fried, FTX's founder and CEO, secretly diverted about $10 billion (about 13 trillion won) in FTX customer deposits to cover losses at his trading firm Alameda Research.
When customers learned of this, they attempted to withdraw funds all at once, triggering a bank run (bank run·large-scale fund withdrawals) and ultimately leading to bankruptcy. Such fraud was possible because all authority was concentrated in the hands of a single CEO.
The financial authorities are pushing to limit controlling shareholder equity to strengthen internal controls and prevent unilateral management by controlling shareholders, but if equity is dispersed, it is hard to avoid slower decision-making. The virtual asset industry changes quickly, and the industry worries that if equity is dispersed and professional managers come in, it will be difficult to boldly push new businesses.
There is also a possibility that domestic virtual asset exchanges will lose competitiveness due to reverse discrimination against overseas exchanges. Major global virtual asset exchanges such as Binance Holdings Ltd., Bybit, and OKX are led directly by their controlling shareholders.
In the case of Coinbase, a Nasdaq-listed company, it follows the disclosure requirements of the U.S. Securities and Exchange Commission (SEC), and there is no cap on equity stakes. The European Union's MiCA (Markets in Crypto-Assets Regulation) reviews the suitability of shareholders with 10% or more equity, including morality and financial soundness, and requires prior notification to authorities to increase a stake.
Industry officials argue that, rather than uniformly capping controlling shareholder equity, Korea should look to overseas examples that strengthen suitability reviews for shareholders above a certain equity threshold. They also say that, if the rationale is investor protection, there are methods such as requiring customer deposits to be kept and managed at a trust institution or an independent third-party bank, as in Japan.