Financial regulators in South Korea, specifically the Financial Supervisory Service (FSS), have cautioned domestic investment firms against concentrating investments too heavily in companies related to cryptocurrency.
A report published in The Korea Herald on Wednesday detailed that the FSS has informally advised local asset managers to limit their financial involvement with crypto-related businesses. The article mentioned stocks like Coinbase and MicroStrategy as examples of such investments.
This recommendation was reportedly given as informal guidance and should be seen as advisory. The practical effect may be limited, as exchange-traded funds (ETFs) operating in South Korea typically require index provider approval to make changes in stock holdings, making immediate adjustments difficult.
An unnamed fund manager commented to The Korea Herald: “Because our fund directly tracks the designated index, simply removing a particular stock without the index itself changing could lead to major discrepancies in tracking. While we understand the regulator’s perspective, immediate action is challenging.”
The FSS acknowledges these existing limitations and stated that their recommendation primarily aims to promote caution in how ETFs are structured, anticipating the introduction of new regulatory frameworks. However, certain voices within the industry have expressed worries over the equity of such expectations.
According to industry sources quoted in The Korea Herald, Korean investors can readily access exposure to crypto firms via ETFs traded on US exchanges. Therefore, limiting this exposure only for domestically-offered products may place local asset managers at an unfair disadvantage. An industry insider, who wished to remain anonymous, stated:
“Restrictions on domestic ETFs will not necessarily stem the flow of capital into this sector. Investors are simply circumventing these limitations through U.S.-based products. The efficacy of such a regulation is thus questionable.”
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This advisory comes after a noticeable increase in South Korean ETFs allocating funds to stocks associated with the crypto industry. Korea Investment Management’s Ace US Stock Bestseller ETF, for instance, currently holds 14.6% of its assets in Coinbase shares. The KoACT Nasdaq Growth Active ETF invests 7.4% in Coinbase and 6% in MicroStrategy, combining to a total of 13.4% exposure.
Similarly, the KoACT Global AI & Robotics Active ETF dedicates 10.3% of its portfolio to Coinbase. Furthermore, the Timefolio Nasdaq 100 Active ETF has an approximate 11% allocation towards crypto-related stocks.
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The FSS also reiterated that Korean financial institutions are barred from directly holding, acquiring, investing in, or using cryptocurrency as collateral. According to an official, “While regulators in both the U.S. and Korea are signaling increased openness to cryptocurrency, there are still no concrete laws or guidelines.”
“Until definitive regulatory frameworks are in place, current existing regulations will continue to be enforced.”
The advisory mirrors the recent trend toward greater regulatory flexibility in South Korea. Earlier in the month, the Ministry of SMEs and Startups in South Korea proposed removing previous restrictions that prevented crypto companies from accessing available tax incentives and financial support programs.
Concurrently, shares in several major South Korean banks experienced a surge this month after submitting trademark applications for stablecoins, signifying growing involvement and interest among institutional players in digital assets. This development happened shortly after the South Korean central bank delayed its central bank digital currency testing program in the face of increasing support for stablecoins.
Bank of Korea Deputy Governor Ryoo Sangdai indicated in June that he favored allowing banks to act as primary issuers of stablecoins within the country, proposing a gradual expansion of this model into other related sectors. Reports from last month suggest that approximately eight major South Korean banks are planning to collaborate on launching a stablecoin tied to the Korean won by the year 2026.
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