Authorities in South Korea have warned local financial institutions from offering spot crypto ETFs following SEC approval in the US.
South Korea’s financial regulator, the Financial Services Commission (FSC), has said that the spot Bitcoin ETFs recently approved in the US may contravene the country’s law. In an official statement published on Friday, the regulator sounded a note of warning without providing extensive details:
“Domestic securities firms brokering overseas-listed Bitcoin spot ETFs may violate the existing government stance on virtual assets and the Capital Markets Act.”
Last month, FSC Chief Kim So-young said on crypto regulation, that a balance between innovation and investor protection is necessary. Speaking at a crypto conference in Seoul, So-young said authorities would try to consider innovation a little more as they continue to regulate cryptocurrencies.
South Korea Unwilling to Approve ETF but Promises Regulatory Review
In the FSC’s Friday statement, the agency promised to review current rules around crypto following updates like the SEC’s approval of ETFs in the spot Bitcoin market. It said:
“Regulations for virtual assets are being established, such as the Act on the Protection of Users of Virtual Assets, etc. which came into effect in July of this year, and we plan to further review them as there are overseas cases, such as in the United States.”
South Korea currently has a rule that prohibits its financial institutions from launching crypto ETFs and is unwilling to change that. An FSC official recently told a reporter at local media platform Kyunghyang that the US approval will not affect South Korea’s rule against ETFs. Also, it is legally impossible to launch a crypto ETF in South Korea because of its Capital Markets Act. The Act limits investment contracts like ETFs to fiat and other assets. Unfortunately, there is currently no allowance for crypto, and South Korean authorities are unwilling to change this law.
As part of the interview with Kyunghyang, the FSC official noted that the financial sector only survived the crypto bear market because of ETF prohibitions. The official suggested that the repercussions of the bear market may have been dire for the US financial sector if the public had access to spot Bitcoin or crypto ETFs.
Crypto ETFs Could Damage Traditional Financial Market
Furthermore, the official added that the SEC’s approval of crypto ETFs is reluctant and only happened because of a court’s decision, likely referring to Grayscale’s victory over the ETF. Grayscale Investments had sued the SEC for rejecting spot Bitcoin ETF applications, accusing the Commission of unfairness. The court eventually ruled that the SEC’s rejection was unmerited and found problems with the Commission’s argument.
The FSC’s official has warned that the spot ETF approval could affect the traditional market. As translated from Korean, the official said:
“If investment in virtual assets is recognized, the demand base of the domestic stock market may actually weaken.”
South Korea’s Virtual Asset User Protection Act was passed early last year and should take effect from July 2024. The Act defines cryptocurrencies and introduces laws for sanctioning misconduct, including penalties and fines for “unfair trading activities.” In addition, the law requires virtual asset services providers (VASPs) to inform the FSC of abnormal transactions.
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