The Financial Supervisory Service (FSS) of South Korea has issued verbal guidance advising asset management firms not to heavily allocate crypto-related stocks—such as Coinbase and MicroStrategy (Strategy)—in their ETF portfolios, according to a report by Korea Herald.
The directive reinforces that administrative guidance from 2017 regarding virtual assets remains in force, requiring financial institutions to abide by the existing framework until new laws are introduced.
2017 Virtual Asset Restrictions Still Apply
The FSS guidance highlights that the 2017 administrative measures—which ban financial institutions from holding, purchasing, acquiring collateral, or investing directly in virtual assets—are still valid.
“Recently, there has been a trend of deregulation related to virtual assets in the U.S. and Korea, but no specific laws or guidelines have been established yet,” an FSS official stated. “This means that existing guidelines should be followed until the new system is complete.”
These rules stem from the South Korean government’s December 13, 2017 emergency measures, which were introduced to curb speculative trading and mitigate money laundering risks associated with corporate virtual asset transactions.
ETFs Holding Coinbase, MicroStrategy Face Scrutiny
The FSS directive comes amid a surge of ‘coin theme’ stocks, such as crypto exchanges and Bitcoin-related firms, in ETF products.
- The ACE US Stock Bestseller ETF from Korea Investment Trust Management holds Coinbase at 14.59%, exceeding the 10% threshold cited by regulators.
- The KoACT US Nasdaq Growth Company Active ETF holds 7.44% in Coinbase and 6.04% in MicroStrategy, totaling 13.48% in crypto-related stocks.
Industry insiders argue that such ETFs are passive funds tracking specific indexes, making it challenging to arbitrarily remove individual stocks without significant tracking errors.
“If stocks are arbitrarily excluded without9 changing the index, the gap rate could skyrocket,” one market insider explained. “I understand the regulatory tone, but it is not easy to respond immediately.”
Regulatory Fairness Questioned
Some local market participants believe applying these restrictions only to domestic ETFs is unfair, as many investors already gain indirect exposure to U.S.-listed crypto ETFs.
“Restricting only domestic ETFs will not stop the flow of funds, and in reality, many investors are already bypassing the market with U.S. ETFs,” a source said. “It is questionable whether the regulations will be effective.”
Summary Key:
- FSS urges South Korean asset managers to limit crypto stock holdings in ETFs.
- 2017 virtual asset investment restrictions remain in effect.
- Coinbase and MicroStrategy allocations in ETFs like ACE US Stock Bestseller have crossed the 10% mark.
- Critics argue that such domestic-only restrictions may push investors toward foreign ETFs.
Source: https://www.ainvest.com/
