South Korean authorities tell asset managers to limit exposure to Coinbase, Strategy: report

South Korea's Financial Supervisory Service (FSS) recently instructed local asset management firms to adjust their exchange-traded funds to limit exposure to crypto-related companies such as Coinbase and Strategy, a report from The Korea Herald said.

The Korea Herald reported Wednesday that the FSS gave such directions verbally to a number of companies earlier this month. The regulator reportedly said that asset managers need to comply with the Financial Services Commission's (FSC) administrative guidelines issued in 2017, which prohibit regulated financial institutions from holding, purchasing, or making equity investments in virtual assets.

The report stated that this directive from the local regulator sparked complaints among domestic financial players, who argue it creates an uneven playing field, as retail investors can access U.S. ETFs with exposure to crypto companies.

An FSS official reportedly said that institutions need to abide by the existing guidelines until the adoption of new regulations, even if there are regulatory changes being made in the U.S. and in South Korea.

The FSS regulates the country's financial sector, focusing on practical, day-to-day oversight of various financial entities. It acts as the executive arm of the FSC, South Korea's top financial regulator.

Changing landscape

Since the U.S. government shifted to a friendlier stance to crypto under President Donald Trump, South Korea has been discussing similar measures to ease some of its strict regulations on crypto and institutional involvement.

Earlier this year, the country began to phase out its de facto ban on institutional trading. The election of pro-crypto President Lee Jae Myung accelerated the paradigm shift, as Lee pushes to enable the local issuance and launch of spot crypto ETFs and strengthen the Korean won market with local currency-based stablecoins.

South Korea houses one of the largest crypto markets in the world, with its retail investors known for their altcoin-heavy trading strategies. As of the end of last year, South Korea had 18.25 million crypto investors, according to the Bank of Korea.