South Korea Tightens Oversight as KOSDAQ Firms Face Scrutiny Over Crypto Shifts

The Korea Exchange first proposed the rule in a consultation paper published in May. The final version applies to all business changes made after the rule's effective date. The exchange said it will also review the 79 firms that pivoted earlier. Companies that can show their pivot was approved by shareholders and disclosed in regulatory filings may avoid a full review.

The move is part of a broader tightening of crypto oversight in South Korea. The Virtual Asset User Protection Act, passed in 2023, imposed registration and disclosure requirements on crypto exchanges. Authorities have also warned against speculative trading in stocks of companies that rebrand as crypto plays.

For investors, the new rule creates a risk for stocks that have rallied on crypto pivot announcements. A delisting review could send shares sharply lower. The exchange said it will consider factors such as whether the business change was approved by shareholders and whether the company disclosed the risks adequately.

The Financial Supervisory Service's report, released in June, noted that many of the 79 firms had little to no revenue from their new crypto businesses. Some had not even launched operations. Retail investors often bought shares after the pivot announcement without understanding the risks, the report said.

Some crypto-pivot firms criticized the rule, saying it unfairly targets companies that adapted to changing market conditions. The Korea Exchange said the rule targets any material change in business direction, not crypto specifically.

For retail investors who bought shares after the pivot announcement, the delisting risk is significant. Shares of companies under review often trade at a discount. If delisted, shareholders may have no way to sell their holdings except through the OTC market, where bid-ask spreads are wide.

The rule could discourage other KOSDAQ firms from pivoting to crypto. Some companies may instead seek to list directly on crypto-focused exchanges or pursue private funding. The Korea Exchange plans to complete its review of the 79 firms by the end of 2026. Companies that cooperate and demonstrate a legitimate business rationale may avoid delisting, the exchange said.