South Korea Seeks to Decentralize Exchange Governance with New Digital Asset Law
South Korea’s Democratic Party has formally proposed a digital asset basic act to decentralize exchange governance following a string of exchange failures and operational errors. Announced by policy chair Han Jeong-ae, the bill (targeted for introduction in the current parliamentary session with phased implementation from late 2025) mandates standardized internal controls, periodic external audits of custody and reserves, no-fault liability during system failures, and comprehensive suitability reviews for major shareholders and executives. The move responds to 2024–2025 data showing frequent internal-control failures — the Financial Services Commission recorded 47 significant incidents in one year and the Korea Financial Intelligence Unit linked poor governance to 78% of crypto-related fraud cases since 2023. A high-profile January 2025 Bithumb malfunction that sent excess Bitcoin to a user is cited as a catalyst. Expected market effects include higher compliance costs (pressuring smaller exchanges), possible consolidation, greater institutional participation, and improved trust metrics; publicly traded blockchain stocks rose ~8.3% on the announcement. The legislation aligns South Korea with global trends (Japan, Singapore, EU MiCA) but emphasizes decentralized oversight within exchanges, potentially setting a regional standard for exchange governance.
Neutral
The proposed digital asset basic act is likely neutral-to-mildly bullish overall for the crypto market. Positive signals: mandated external audits, standardized internal controls and suitability screening should raise trust in South Korean exchanges, reduce operational risk, and encourage institutional participation—factors that support higher long-term demand and price stability. The immediate market reaction is mixed: compliance costs and tighter governance may pressure smaller exchanges, prompt consolidation, and temporarily disrupt liquidity or services. Historical parallels: Japan’s 2022 external-audit rules reduced exchange incidents and gradually restored market confidence; initial short-term compliance costs were outweighed by improved trust and institutional flows. Short-term: expect volatility around legislative milestones, possible localized trading disruptions, and re-pricing of exchange-related equities. Long-term: improved governance should lower systemic risk, increase institutional capital allocation, and enhance South Korea’s exchange credibility—a structurally constructive development for crypto markets, though benefits will accrue gradually as rules are implemented and enforced.