South Korea’s Stance on Virtual Currency Investment and ETFs in 2024

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South Korea has reaffirmed its strict stance on virtual currency investments. The country’s biggest financial regulator, the Financial Services Commission (FSC), unequivocally did stated that it will continue to enforce its policy that restricts financial institutions from launching cryptocurrency exchange-traded funds (ETFs). This position comes despite the growing global adoption of cryptocurrencies and the approval of crypto ETFs in the United States.

The Financial Services Commission stated that the decision to maintain the ban was rooted in the need to ensure the stability of financial markets and protect investors. According to local media reports, an FSC official emphasized that the approval of the spot bitcoin ETF in the US does not affect Korea’s regulatory approach. The regulator’s tough stance reflects a cautious attitude towards the volatile nature of cryptocurrencies and a commitment to protecting the traditional financial system.

South Korea’s existing capital markets law limits the scope of underlying assets for investment contract securities, such as ETFs, to traditional financial investment instruments, currencies and commodities. Cryptocurrencies, which are not recognized as financial assets in South Korea, fall outside the scope of eligible investments for financial institutions. This policy has been in place since 2017 and remains a cornerstone of South Korea’s approach to managing digital currency risks.

In addition to the ETF ban, South Korea is also working on comprehensive crypto regulation, which is being developed in two parts. The first part of this regulation, passed last year, is due to enter into force in July 2024. This legislation will establish clear rules regarding the issuance, listing and delisting of cryptocurrencies. The second part of the regulation is still under construction and aims to further refine the legal framework governing digital assets.

Another important aspect of South Korea’s regulatory framework is the Virtual Asset Consumer Protection Act, scheduled to take effect on July 19, 2024. This act will impose specific regulations for improved consumer safety and market stability in the virtual asset sector . In particular, the Financial Services Commission announced that NFTs (non-fungible tokens) and CBDCs (Central bank digital currencies) are exempt from these provisions.

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Recent developments show a cautious but evolving approach by South Korean authorities to cryptocurrency and digital assets. While maintaining tight control over the involvement of traditional financial institutions in crypto, the government is also laying the groundwork for a regulated and secure environment for digital asset transactions.

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