South Korean Regulator Orders Asset Managers to Cut Crypto ETF Exposure

TLDR

• South Korea’s FSS urges asset managers to limit exposure to U.S.-listed crypto firms.

• The FSS’s move reinforces the 2017 ban on regulated firms’ crypto investments.

• The directive targets firms holding stakes in Coinbase and Strategy ETFs.

• Despite global regulatory changes, South Korea sticks to 2017 crypto rules.

South Korea’s Financial Supervisory Service (FSS) has instructed local asset management firms to limit their exposure to cryptocurrency exchange-traded funds (ETFs) and digital asset companies, including Coinbase. This guidance is aligned with the country’s existing regulations dating back to 2017, which prohibit financial institutions from investing in or holding virtual assets.

The FSS issued these verbal instructions earlier in July 2025, citing the need for local firms to comply with the current rules until new regulatory guidelines are introduced. The instruction has sparked dissatisfaction among South Korean financial entities, which believe this regulation creates an uneven playing field for local firms compared to international retail investors who can access U.S.-listed crypto ETFs. These ETFs often include major companies like Coinbase and Michael Saylor’s Strategy.

The regulatory landscape surrounding cryptocurrency investments in South Korea has remained strict. Since 2017, the Financial Services Commission (FSC) set forth a policy prohibiting financial institutions from holding, buying, or making equity investments in virtual assets or crypto-related firms. This policy was aimed at protecting institutional investors from the volatility and risk associated with digital currencies and assets.

Despite global shifts in regulatory attitudes, such as the more favorable stance on crypto in the U.S., South Korean authorities have maintained their cautious approach. The latest directive from the FSS reinforces these existing guidelines, despite pressure from local financial players who advocate for more flexibility in the market. These firms argue that the U.S. market has provided easier access to crypto investments for retail investors, putting local institutions at a disadvantage.

An FSS official emphasized that the regulatory framework in South Korea must remain consistent until new regulations are fully established. This stance aims to maintain stability and minimize risks associated with crypto investments for South Korean financial entities.

While the current stance may seem restrictive, there is growing momentum within South Korea to reconsider its strict crypto regulations. The election of President Lee Jae Myung earlier in the year has accelerated discussions on easing policies related to digital assets. Under his leadership, there is a push to support the issuance of local cryptocurrency ETFs and introduce stablecoins backed by the South Korean won.

This shift is part of a broader strategy to strengthen South Korea’s position in the global crypto market. However, for now, asset managers and financial institutions must adhere to the 2017 policy until further regulatory developments occur.

Despite these ongoing regulatory discussions, the country continues to house one of the largest crypto markets in the world, with millions of retail investors heavily involved in altcoin trading. As of last year, South Korea was home to more than 18 million crypto investors, according to the Bank of Korea.

The FSS’s latest directive has raised concerns among financial players in South Korea who argue that it puts them at a competitive disadvantage. They point out that while institutional investors in South Korea are restricted from buying crypto-related equities, retail investors in the U.S. have access to ETFs that include Coinbase and other digital asset companies.

South Korean asset managers have voiced frustrations over these disparities, as they believe that such regulations prevent them from tapping into profitable markets. However, as the South Korean government works toward crafting more comprehensive crypto regulations, the FSS is emphasizing that current rules must be followed until a more robust framework is put in place.

The regulatory environment remains uncertain for the future, and much will depend on how quickly South Korea can update its laws to accommodate the growing demand for institutional crypto investments. In the meantime, asset managers will need to carefully navigate the existing restrictions while keeping an eye on future regulatory changes.