South Korea Considers Lifting Ban on Spot Crypto ETFs

SUMMARY

South Korea’s Financial Services Commission is reviewing its ban on local spot cryptocurrency ETFs and institutional trading accounts amid calls for policy changes.
The regulator is also investigating the monopolistic practices of Upbit, which dominates the country’s digital asset exchanges.

South Korea’s top financial regulator, the Financial Services Commission (FSC), is reevaluating the ban on local spot cryptocurrency exchange-traded funds (ETFs) and institutional accounts. According to local news agency News1, this decision follows a report from the FSC during its annual audit on Thursday. The newly formed cryptocurrency committee will review the current ban, signaling a change in the regulator’s stance on digital asset exposure in traditional financial markets.

In January, the approval of spot bitcoin ETFs in the U.S. prompted the FSC to reaffirm its ban on local crypto ETF listings. The regulator cited potential risks to financial market stability as the reason for maintaining the prohibition. However, South Korean legislators have been advocating for changes in this policy. Both the ruling Democratic Party and the opposition party promised to support local spot bitcoin ETFs during their election campaigns earlier this year.

In May, the winning left-wing party announced plans to request the FSC to review the ban. Since 2018, South Korean institutional investors have faced strict regulations that prevent them from opening cryptocurrency trading accounts on exchanges. This guidance from the FSC has effectively stifled institutional participation in the local crypto market.

In addition to reviewing ETF policies, FSC Chair Kim Byung-hwan plans to investigate the monopolistic structure of South Korean digital asset exchanges, particularly the dominance of Upbit. Recent data shows that Upbit accounted for over 61% of the trading volume among the country’s five fully licensed exchanges, processing more than $1.17 billion in a single day. Upbit’s market share peaked at an average of 80% in March.

During the audit, Kim responded to Democratic Party lawmaker Lee Kang-il, who raised concerns about the relationship between Upbit and its partner K-bank. South Korean regulations mandate that cryptocurrency exchanges maintain user deposits with partner banks. Lee expressed worries about Upbit’s considerable influence on K-bank, noting that Upbit deposits constitute 20% of K-bank’s total deposits.

This reliance raises concerns about a potential bank run if the partnership between Upbit and K-bank were to be disrupted. K-bank, one of South Korea’s earliest digital banks, is currently preparing for an initial public offering (IPO). Local news reports suggest that K-bank’s dependence on Upbit poses risks to its plans to go public, highlighting the intricate ties between the crypto and traditional banking sectors in South Korea.