In recent years, the cryptocurrency industry has faced increasing legal challenges and controversies in South Korea. Financial authorities are now taking steps to implement stringent eligibility reviews for major shareholders of cryptocurrency exchanges, reflecting the standards upheld in the banking sector. These measures aim to address the involvement of major shareholders in fraudulent and market-manipulative activities, as well as to protect users from potential harm.

The Financial Intelligence Unit (FIU) under the Financial Services Commission has organized a task force to reform coin exchange reporting requirements. This new mandate will be integrated into the coin exchange renewal reporting items, which will commence in October 2024. Existing exchanges, starting with Upbit, will undergo these reviews every three years, following the initial report acceptance.

One of the key focuses of the task force will be to scrutinize the eligibility of major shareholders. This is an important procedural safeguard that allows the government to periodically assess whether the majority shareholder possesses the necessary qualifications to operate a financial enterprise. Currently, regulations only require exchange representatives and registered executives to report and undergo review when declaring a virtual asset business. However, the involvement of major shareholders in fraudulent and market-manipulative activities has prompted the need for stricter scrutiny.

The initiative by the FIU aims to curb illicit activities by major shareholders who hold significant influence over coin exchange businesses. By ensuring that major shareholders meet the necessary qualifications, authorities can minimize the risk of fraudulent trading and market manipulation. This will ultimately protect users and maintain the integrity of the cryptocurrency market.

Recent cases involving major shareholders have highlighted the urgency for stronger regulations. One notable example is the major Bithumb shareholder, Jong-hyun Kang, who is currently facing a primary criminal trial for alleged fraudulent trading. Another case involves Song Chi-hyung, the predominant shareholder of Upbit and Chairman of Dunamu, who is currently undergoing a Supreme Court trial for purported market manipulation. These high-profile cases have underscored the need for a review system for major shareholders of virtual asset business operators.

Representative Yoon Chang-hyeon of the People Power Party has proposed a legislative amendment to the Special Financial Services Act. This amendment advocates for the incorporation of a review system specifically targeting major shareholders of virtual asset business operators. If implemented, this amendment could further strengthen the regulatory framework and enhance transparency within the cryptocurrency industry.

Stricter regulations on major shareholders of cryptocurrency exchanges in South Korea are necessary to protect users and maintain the integrity of the market. The initiation of eligibility reviews by the FIU reflects the growing recognition of the risks associated with major shareholders engaging in fraudulent activities. By introducing these measures, financial authorities aim to create a more secure and transparent environment for cryptocurrency trading in the country.


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