FTC Classifies Bithumb as a Conglomerate
In a recent development, the Fair Trade Commission (FTC) of South Korea has recognized the cryptocurrency exchange Bithumb as a conglomerate. This classification signifies that Bithumb must comply with a suite of regulatory financial obligations effective from May 1, following its inclusion in an exclusive list which now features only four other companies. This decision impacts Bithumb’s operational framework, placing it under stricter scrutiny than typical businesses in the region.
Implications of Conglomerate Status
So, what does this newfound status imply for Bithumb? South Korean law partitions conglomerates into two categories: the “large conglomerate” and a secondary “conglomerate” classification. Companies labeled as large conglomerates face the most stringent transparency standards, necessitating comprehensive financial disclosures, regular updates on their stock holdings, and strict governance regulations applicable to directors and their families to ensure ethical conduct.
Bithumb’s new title aligns it with a group of firms governed by investment and cross-holding mandates. These rules are pivotal in mitigating the risk of monopolistic behaviors, ensuring that influential entities do not amass significant shares in publicly traded companies. Notably, the FTC earlier recognized Upbit, a direct competitor of Bithumb, as a large conglomerate, marking it as the first in the cryptocurrency sector to receive this designation in 2022.
Shifts in Classification
However, amidst ongoing changes, Upbit has been reevaluated, shifting to the lower conglomerate category in 2023, placing it alongside Bithumb. Both classifications impose numerous restrictions, prohibiting internal equity investments and loan guarantees with affiliates, thus curtailing potential conflicts of interest.
Broader Trends and Regulatory Commitment
Bithumb’s classification is part of a broader trend, as the FTC has only added five companies to the congested conglomerate list this year, with notable entries such as LIG, a defense manufacturer; Daekwang from real estate; Sajo known for food production; and shipping firm EUKOR.
This move by the FTC is reflective of an ongoing commitment to monitoring the influence of chaebols—large, family-owned conglomerates like Samsung and LG—that dominate South Korea’s economic landscape. Critics argue these entities hold undue influence over both the market and political system, stifling competition and hampering smaller entrepreneurs.
Concerns Over Assessment Methodology
The legislation aimed at regulating conglomerate practices was largely put in place to curb abuses like “circular investment,” where business leaders obscure financial dealings by investing back into their own subsidiaries.
Recent FTC remarks indicated that the surge in crypto trading volumes towards the latter part of 2022 was a contributing factor in Bithumb and Upbit’s evaluations.
Detractors of the FTC’s procedures regarding the assessment of crypto exchanges have voiced concerns over the agency’s methodology, particularly how it gauges asset evaluations since many exchanges, including Bithumb, house significant amounts of cryptocurrency versus conventional fiat, making accurate assessments challenging.
