07-26-2025 
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South Korea’s Financial Supervisory Service (FSS)—responsible for supervision and examination of all financial institutions in the country—advised local asset management firms to adjust their exchange-traded funds (EFTs) to limit exposure to digital asset-related companies, including Coinbase (NASDAQ: COIN) and MicroStrategy (NASDAQ: MSTR).
According to a report on July 23 from local outlet The Korea Herald, the FSS issued “verbal guidance” to local asset managers to “refrain from increasing the proportion of virtual asset-related companies in listed index funds (ETFs).”
The FSS acknowledged that passive ETFs cannot easily remove specific stocks without changes approved by the index providers, which is why the finance watchdog issued cautionary guidance rather than strict mandates.
“We are fully aware that passive ETFs cannot be excluded at the discretion of the asset management company because their structure directly follows the underlying index,” said the FSS, as noted in the report. “This statement is intended to encourage caution in the overall design of ETF products until the system is reorganized.”
However, the new guidance was not met with universal support from the industry. The Korea Herald report also cited several “industry insiders” who raised the issue of fairness, arguing that it would not be “desirable” to apply regulatory standards only to domestic ETFs, given that local investors are already making investments through ETFs of virtual asset investment companies listed in the United States.
“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,” said one industry insider. “It is questionable whether the regulations will be effective in reality.”
South Korea’s digital currency and regulatory landscape
The new FSS guidance comes after increasing interest in South Korean ETF allocations to digital asset-related stocks.
According to the July 23 report, among domestically listed ETFs, “there are many products with a virtual asset-related stock proportion exceeding 10%.”It cited the examples of Seoul-based asset manager Korea Investment Trust Management, and its “ACE US Equity Bestseller ETF,” which holds Coinbase at 14.59%. This increase in interest is combined with what the FSS described as “a trend of deregulation related to virtual assets in the U.S. and Korea.”
For this reason, the regulator underscored the need for firms to comply with 2017 emergency administrative guidance related to virtual currencies.
On December 13, 2017, the South Korean government revealed emergency measures in response to the speculative domestic digital asset market. Specifically, the guidance encouraged institutional financial companies not to hold, purchase, acquire collateral, or invest in virtual assets.
While these institutional restrictions are more de facto than statutory, the Financial Services Commission (FSC)—the country’s top finance sector regulator—added instructions to domestic financial institutions to avoid providing remittance services to exchanges that do not follow the restrictions. This put pressure on financial institutions and exchanges to comply with the emergency guidance—a form of indirect regulation.
On Wednesday, the FSS reportedly re-emphasized that these existing guidelines “should be followed until the new system is complete.”
The new system in question is the Digital Asset Basic Act (DABA), introduced by South Korea’s ruling Democratic Party on June 10.
Amongst other measures, the DABA would set out “bankruptcy remoteness” rules for stablecoin reserves, provide for a minimum equity capital of 500 million Won (around $363,000) for stablecoin issuers, impose entry and business conduct requirements, prescribe procedures for the issuance and circulation of digital assets, impose disclosure obligations, and prohibit unfair trading practices.
According to South Korean law firm Shin & Kim: “The bill seeks to establish a comprehensive legislative framework governing digital assets, setting out clear definitions and legal characterizations, and introducing regulatory provisions tailored to specific business sectors.”
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