South Korea’s Financial Services Commission (FSC) has expressed concerns regarding domestic securities firms brokering overseas-listed Bitcoin exchange-traded funds (ETFs). In a notice issued on January 12, the regulator highlighted potential violations of local laws, specifically the Virtual Asset User Protection Act and the Capital Markets Act. This article examines the FSC’s warning and its implications for the cryptocurrency industry in South Korea.
While acknowledging the need to establish a regulatory framework for the emerging industry, the FSC cautioned that the brokerage services provided for foreign ETFs could be in violation of existing legislation. In response to this concern, the FSC announced its intention to conduct a comprehensive review of regulations to ensure alignment with international practices. As a result of the FSC’s warning, several local securities firms, such as Samsung Group’s securities division and Mirae Asset Securities, suspended their services for foreign spot Bitcoin ETFs in various countries, including Canada and the U.S.
The FSC’s warning comes in the wake of a renewed ban by South Korean regulators on crypto investments by financial institutions. In December 2017, emergency measures were implemented to prohibit institutional cryptocurrency investments. Since then, the country has initiated a comprehensive crypto regulation initiative set to be enforced by July. While South Korea may not currently support spot crypto ETFs, it has recently announced plans to mandate the declaration of crypto assets by public officials. The Ethics Policy Division disclosed that it will publish the assets held by approximately 5,800 public officials.
In contrast to South Korea’s concerns, on January 10, the U.S. Securities and Exchange Commission (SEC) approved the launch of 11 spot Bitcoin ETFs. This decision, after years of rejections due to market manipulation concerns, garnered significant interest from the community. These ETFs recorded a trading volume exceeding $4 billion on their first day of trading. However, traditional firms in the U.S., such as Vanguard, are restricting customers from purchasing these Bitcoin ETFs, citing a misalignment with their investment philosophy.
The concerns raised by the FSC highlight the regulatory challenges faced by the cryptocurrency industry in South Korea. While the country aims to establish a regulatory regime for the emerging industry, there are concerns about potential violations of existing legislation. The FSC’s warning led to the suspension of brokerage services for foreign spot Bitcoin ETFs by several local securities firms. In contrast, the approval of spot Bitcoin ETFs in the U.S. demonstrates a different approach to regulation. As the industry continues to evolve, finding a balance between regulation and innovation will be crucial for the future of cryptocurrency in South Korea and globally.
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