Korean Crypto Exchanges Clash with FSC Over Proposed Investment Limits

South Korea's digital asset platforms are pushing back hard against new regulatory proposals that could cap investor exposure.

The Financial Services Commission's latest draft rules aim to impose strict investment ceilings—a move exchanges argue will stifle innovation and drive capital offshore.

Industry Pushback Gains Momentum

Major trading platforms have unified in opposition, warning that restrictive limits could undermine Korea's position as a leading crypto hub. They claim the rules would penalize retail investors while doing little to curb systemic risk—a classic case of regulatory overreach in a sector that thrives on open access.

Regulatory Tensions Escalate

The FSC maintains the limits are necessary for consumer protection, pointing to volatility and leverage risks. But exchanges counter that education and transparent disclosure would serve investors better than arbitrary caps. The standoff highlights the growing friction between rapid technological adoption and traditional financial oversight.

Market Implications and Next Steps

If implemented, the restrictions could redirect significant trading volume to less regulated jurisdictions—exactly the outcome regulators claim they want to avoid. The debate now moves to consultation phases, with both sides digging in for a prolonged policy battle. Because nothing says 'investor protection' like limiting how much someone can invest—unless you're a traditional finance institution, of course.

FSC proposal aims to address risks of concentrated ownership 

Earlier this month, the Financial Services Commission (FSC) of South Korea proposed a 15-20% cap on digital asset ownership on domestic exchanges for private companies and other major shareholders to address potential risks posed by concentrated ownership. The proposal was part of FSC’s upcoming Digital Asset Basic Act, which is the second regulatory framework for Digital assets in South Korea. 

The Digital Asset Basic Act is expected to be completed this quarter, creating formal rules for major crypto initiatives launched last year across the country. Some initiatives include Korean won-pegged stablecoins and the introduction of Korea’s spot crypto ETFs. 

According to DAXA, capping ownership at exchanges could hinder the development of the domestic cryptocurrency market and alter the ownership structure of private firms, potentially shaking the foundation of the cryptocurrency industry. The alliance warned that the proposal could drive investments to overseas platforms, further diluting major shareholders’ responsibility for compensating users over asset custody and management. According to DAXA, this would only undermine the user protection.

DAXA believes such restrictions could increase uncertainty among the startup and venture ecosystem and reduce the entrepreneurial spirit. The group highlighted that only institutions that align with global standards can safeguard national interests. 

Unlike other forms of securities, cryptocurrencies are designed to operate across borders with minimal to no restrictions. DAXA noted that if the country fails to sustain investments in the domestic exchanges, South Korea could lose global competitiveness in the digital asset sector and potentially drive users towards international exchanges.

DAXA urges FSC to align systems with global standards 

According to DAXA, the only way to safeguard national interests is to create systems that align with global standards. The group noted that the government should reconsider the principles of the market economy, especially during the current growth phase of the digital asset industry across South Korea. 

Nextrade, a South Korean stock exchange platform, is already planning to include the 15% cap on its digital asset exchange. The firm already has a 15% voting shareholding limit for its stock exchange platform. ZDNET Korea wrote that if the proposal is implemented, the impact may extend beyond specific companies. These may prompt major domestic digital asset exchanges to overhaul their existing shareholding structures entirely.

The report noted that capping shareholders’ ownership in private companies conflicts with constitutional rights, such as private property rights, and risks undermining the stability of the established market economic model. ZDNET Korea reported that international markets, such as the NYSE and NASDAQ, lack equity ownership limits like those imposed on banks. For instance, banks are restricted from holding more than 4% of bank stock by industrial capital and 15% for local banks, while internet-only banks have an exception that allows non-financial investors to own up to 34%. 

Meanwhile, the FSC has lifted the ban on corporate crypto investments, allowing listed companies and professional investors to invest directly in crypto. According to a Cryptopolitan report, more than 3,500 listed companies and investor-registered corporations will be allowed to invest up to 5% of their equity capital in crypto. 

The smartest crypto minds already read our newsletter. Want in? Join them.