South Korea’s Financial Supervisory Service (FSS) has issued informal guidance urging asset managers to reduce holdings in cryptocurrency-linked exchange-traded funds (ETFs). This advisory reinforces longstanding restrictions adopted in 2017 but coincides with the country’s gradual move toward institutional crypto investment liberalization.
Regulators specifically cautioned against overexposure risks, citing examples such as Korea Investment Management’s ETF holding over 14% in Coinbase shares. The FSS maintains conservative policies on crypto-backed ETFs but acknowledges challenges for passive funds seeking compliance without redesigning core products.
This guidance reflects the government’s balancing act between regulatory caution and market evolution, evidenced by bipartisan support for easing restrictions like the ‘One Exchange, One Bank’ rule. As South Korea transitions toward a more open crypto investment landscape, the FSS aims to align ETF portfolios with regulatory expectations.
The advisory underscores institutional preparations underway while establishing guardrails against concentrated market risks during this period of gradual market liberalization.