South Korea is on the verge of reevaluating its ban on local spot cryptocurrency exchange-traded funds (ETFs) and institutional accounts on crypto exchanges. The Financial Services Commission (FSC), the country's top financial watchdog, announced this decision during its annual audit report, highlighting a shift from its previously strict stance on digital asset exposure in traditional financial markets.
The FSC's new cryptocurrency committee, an advisory group dedicated to discussing digital asset policies, will assess the current ban on spot crypto ETFs. This initiative signals a notable change in regulatory attitudes following the approval of spot bitcoin ETFs in the U.S. earlier this year. Despite this, the FSC had reaffirmed its commitment to maintaining the ban on local ETF listings, citing concerns over financial market stability.
Calls for regulatory change have intensified among South Korean legislators. Both the ruling Democratic Party and the opposition party included the approval of local spot bitcoin ETFs in their election campaigns. The Democratic Party, which won the elections, indicated in May that it would formally request the FSC to reconsider the ban.
Since 2018, institutional investors in South Korea have faced stringent restrictions that have effectively barred them from establishing cryptocurrency trading accounts on exchanges. The FSC has maintained tight guidance over these activities, limiting participation in the growing crypto market.
Alongside the review of ETFs and institutional accounts, FSC chair Kim Byung-hwan announced an investigation into the monopolistic practices within South Korea’s digital asset exchanges, primarily dominated by Upbit. Recent data showed that Upbit accounted for over 61% of the trade volume in the past 24 hours, processing over $1.17 billion.
During the audit, Kim addressed concerns raised by lawmaker Lee Kang-il regarding the financial relationship between Upbit and K-bank. Due to regulations, cryptocurrency exchanges must have user deposits held by partner banks. Lee highlighted the substantial reliance of K-bank on Upbit, stating that Upbit deposits constitute 20% of K-bank's total deposits. He warned of potential instability if the partnership were to be disrupted.
K-bank, one of South Korea's earliest digital banks, is preparing for an initial public offering (IPO). However, several reports have indicated that K-bank's heavy dependence on Upbit poses significant risks to its plans for going public.
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