South Korea’s Financial Regulator Considers Lifting Ban on Cryptocurrency Spot ETFs

South Korea’s Financial Services Commission (FSC) is reconsidering its ban on cryptocurrency spot exchange-traded funds (ETFs), signalling a potential shift in its stance towards digital asset investments.

FSC Reconsiders Spot ETF Ban Amid Growing Pressure and U.S. Developments

Local news source News1 reports that the FSC plans to review its long-standing prohibition against local spot ETFs and institutional accounts on cryptocurrency exchanges. This review is part of the efforts of a newly established cryptocurrency committee tasked with developing policies for digital assets.

The renewed focus on the spot ETF ban follows the recent approval of spot Bitcoin ETFs in the United States, which has intensified pressure on the FSC to rethink its rigid stance. Previously, the FSC maintained the ban to ensure financial market stability. However, mounting pressure from lawmakers, including commitments from both the ruling Democratic Party and opposition, to support local spot ETF approval during election campaigns, has prompted the regulator to reconsider its position.

FSC Investigates Cryptocurrency Exchange Monopolies Amid ETF Review

The FSC’s stringent regulations have deterred South Korea’s institutional investors from entering the cryptocurrency market since 2018. FSC Chairman Kim Byung-hwan indicated that, in addition to reviewing ETF policies, the commission will investigate the monopolistic nature of cryptocurrency exchanges in South Korea, particularly focusing on Upbit, which holds over 61% of the trading volume among licensed exchanges in the country.

Concerns also arise regarding Upbit's financial relationship with K-bank, one of South Korea's pioneering digital banks. Lawmaker Lee Kang-il noted that deposits from Upbit account for approximately 20% of K-bank's total deposits. This situation raises alarms about potential bank runs if Upbit were to fail. Additionally, K-bank's plans for an initial public offering could face complications due to its ties with Upbit, highlighting the complex interplay between traditional finance and the evolving cryptocurrency landscape in South Korea.

The FSC's reconsideration of the spot ETF ban reflects a broader shift towards supporting cryptocurrency investments, spurred by international developments and domestic pressures. However, the challenges posed by existing monopolistic structures and banking relationships underscore the complexities within South Korea's financial and digital asset sectors. The future regulatory landscape remains uncertain as the country navigates these evolving dynamics.