South Korea’s Financial Supervisory Service recently gave verbal guidance to domestic asset management firms, urging them to reduce their investments in crypto-related stocks like Coinbase and Strategy within ETFs. The agency referred to a 2017 policy, which restricts institutional participation in virtual asset markets, as the basis for its instruction.
The FSS informally delivered this guidance to several firms earlier this month, according to the Korean Herald. This instruction reportedly targets companies like Coinbase and Strategy, formerly MicroStrategy, which firms often include in ETFs that track crypto-related industries.
The warning doesn’t count as a formal enforcement action, but it clearly reminds asset managers to follow the Financial Services Commission’s 2017 directive.
Why the FSS Chose This Moment to Issue Its Directive
The FSS emphasized that financial institutions must still adhere to current rules, even though talks about reform are ongoing. Under the 2017 administrative notice, authorities prevent these institutions from directly owning, buying, or investing in digital assets or companies mainly focused on crypto. Until new regulations are officially passed, the existing restrictions remain in force.
A recent advisory followed a sharp increase in domestic ETFs directing significant portions of their holdings toward companies involved in cryptocurrency. Regulators noticed this growing trend and issued the statement in response.
For instance, the Korean Herald highlighted the ‘ACE U.S. Bestseller ETF’ from Korea Investment Management, which allocates more than 14% of its holdings to Coinbase shares. It also noted that numerous other actively and passively managed funds maintain similarly large stakes in affiliated firms.
Officials explained that passive ETFs typically do not exclude individual stocks unless their benchmark index undergoes a revision. However, they encouraged companies to proceed carefully when creating new ETF products.
The FSS explained that it took action to limit excessive risk before a full regulatory update takes effect. The move aims to protect the market and ensure a smoother transition once the new rules are implemented.
Still, the timing of the order stands out, as South Korea has already started easing its restrictions on institutional access to crypto. As previously reported, regulators in South Korea have decided to gradually remove the country’s informal ban on institutional cryptocurrency trading.
Nonprofit organizations received approval last month to sell donated cryptocurrency assets. Regulators are expected to grant similar rights to public companies and institutional investors in the latter half of 2025.
South Korea’s Evolving Position on Crypto ETFs
South Korea allows retail investors to access foreign crypto-linked ETFs, but local firms face restrictions in offering similar products. This policy reflects the government’s ongoing cautious stance toward crypto exchange-traded funds.
After the U.S. and several leading global markets adopted more crypto-supportive regulations, South Korea began adjusting its approach. In the previous month, the Financial Services Commission introduced an updated digital asset roadmap, which outlines steps to legalize spot cryptocurrency ETFs during the year’s second half.
Moreover, both the ruling Democratic Party and the People Power Party have shown strong support for the legalization of crypto ETFs. They introduced bills aimed at permitting spot ETF trading and committed to eliminating restrictive rules, including the “One Exchange, One Bank” policy, which had previously restricted collaborations between financial institutions and crypto exchanges. These efforts reflect a shared political will to open the crypto market to broader financial integration.
President Lee Jae-myung has strongly championed reform in the crypto sector, which has significantly accelerated this momentum. During his campaign, he pledged to legalize spot Bitcoin ETFs and expand institutional participation.
The administration has taken steps to formalize the crypto sector by establishing clear regulations and advocating for reduced trading fees to appeal to a younger demographic of investors.
