South Korea Tells Firms to Limit Stakes in Crypto-Linked Assets

According to a report in The Korea Herald, the FSS “verbally told several firms to comply with its 2017 policy stance and cut exposure to U.S.-listed crypto ETFs, Coinbase and Strategy.” This reinforces a longstanding ban, rooted in a 2017 administrative order, on regulated financial institutions from holding or buying equities tied to digital assets. An FSS official clarified that, although international regulatory regimes, especially in the U.S. are evolving, Korean institutions must still adhere to existing domestic rules until new frameworks are established.

This advisory comes against a backdrop of growing interest in crypto-linked companies among Korean ETFs. Several domestic funds have built notable positions in firms like Coinbase and MicroStrategy, reflecting growing investor appetite for digital asset exposure. However, these allocations have also raised regulatory concerns.

South Korea’s FSS finds itself between two imperatives. On one hand is investor protection: the 2017 Virtual Asset User Protection Act and a subsequent administrative order strictly prohibit financial institutions from holding or leveraging crypto or related equities. On the other is the global momentum toward embracing crypto-focused assets, especially in the U.S. and parts of Europe. Critics argue that informal guidance, without transparent legal foundations, may hinder competitiveness. However, the FSS contends that it must maintain consistency until a new statutory framework is passed.

This guidance doesn’t occur in isolation. Earlier in the year, regulators in Seoul signaled a gradual relaxation of crypto rules. In May 2025, the FSS announced plans to allow non-profits and virtual-asset exchanges to sell their crypto holdings under strict conditions, first for charities and universities, later expanding to listed companies. In March 2025, the Financial Services Commission, the umbrella financial authority, floated proposals to permit corporate participation in crypto markets, effective later that year. Yet, these measured reforms retain guardrails, ensuring that institutional players can’t fully embrace crypto without oversight.

South Korea is expected to soon debate new crypto laws, such as the Digital Asset Basic Act, which may clarify the legal standing of ETFs and equity investments in crypto-linked firms. The current direction from the FSS is advisory, not a statutory change. ETFs may remain exposed in practice until indices are updated. But firms are clearly being nudged to prepare for stricter compliance. As the U.S., EU, and other financial hubs roll out regulated crypto investment vehicles, Korea faces pressure to keep pace. Passive caution may not be tenable long-term in a rapidly evolving global market.

South Korea’s FSS is reinforcing existing rules from 2017 via informal guidance, signaling that domestic asset managers should rethink heavy allocations to Coinbase, Strategy, and crypto-linked ETFs. With formal legal reforms still pending, and global regulators advancing faster, the government is walking a tightrope between protecting investors and preserving international competitiveness.

This move offers important takeaways for investors. ETF holders in Korea should expect future rebalances aligning with updated regulations. Global crypto firms seeking Korean participation should prepare for continued conservatism. Regulatory observers should watch legislative developments, especially the Digital Asset Basic Act, for decisive clarification.