The Financial Services Commission (FSC), South Korea’s leading financial authority, is reportedly starting a review process to reassess its position regarding the ban on spot cryptocurrency exchange-traded funds (ETFs).
This development follows the establishment of a new cryptocurrency advisory committee within the FSC, indicating a possible shift from its previous, more rigid stance on digital asset exposure within traditional financial markets.
The committee’s mission is to reexamine existing regulations that currently inhibit the listing of spot crypto ETFs in South Korea.
Rationale Behind the Review for Lifting Crypto ETF Ban
The Financial Services Commission has expressed its intent to review the approval of virtual asset spot index funds (ETFs) and permissions for corporate virtual asset accounts through the Virtual Asset Committee.
According to News1, the South Korean regulator reexamined its position on spot crypto ETFs in response to “ongoing calls for correction.” The report elaborated:
In the United States, Bitcoin and Ethereum spot ETFs are already listed and traded, yet virtual asset ETFs remain prohibited in Korea. Additionally, the establishment and trading of corporate virtual asset accounts are also barred, with persistent calls for correction.
In conjunction with reviewing the crypto ETF ban, the FSC’s chairman, Kim Byung-hwan, has indicated that the regulator will also investigate the “monopolistic structure” of South Korean digital currency exchanges, particularly focusing on Upbit, which currently holds a substantial market share.
Among the five fully licensed cryptocurrency exchanges in South Korea, Upbit commands a considerable portion of the trading volume, accounting for over half of the market.
This dominance has raised alarms among legislators and regulators, as Democratic Party representative Lee Kang-il has pointed to Upbit’s close financial ties with its partner, K-bank.
South Korean regulations require digital currency exchanges to secure user deposits via partner banks, with K-bank playing a crucial role in facilitating Upbit’s operations.
Lee emphasized that Upbit’s deposits constitute 20% of K-bank’s overall deposit holdings, heightening concerns over potential financial risks to K-bank, particularly should their partnership face any disruptions.
Implications for the Market
The reconsideration of South Korea’s crypto ETF ban and the scrutiny of the dominant exchange may herald significant changes in the local digital asset landscape.
If the prohibition on spot crypto ETFs is revoked, it would signify a major transformation in South Korea’s regulatory framework concerning cryptocurrencies, creating new investment avenues for both institutional and retail investors.
Nonetheless, the outcome of this review remains uncertain as the regulator continues to assess the potential risks to market stability.
Featured image created with DALL-E, Chart from TradingView
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