The FSS reminded institutions that they cannot invest in crypto assets. The regulator recommended that institutions not increase the share of crypto companies in their exchange-traded funds. This primarily concerns companies like Coinbase and MicroStrategy. South Korea's Financial Supervisory Service (FSS) has ordered local asset managers to reduce their exposure to crypto stocks, including Coinbase and MicroStrategy, The Korea Herald reported . According to the publication, the order was received in early July 2025. Companies were advised not to increase the share of crypto firms in their exchange-traded funds (ETFs) due to regulations introduced in 2017. These rules do not allow regulated institutional financial counterparties to hold cryptocurrencies or derivative products on their balance sheets. However, as the publication noted, the FSS's instructions were advisory, not mandatory. ”There has been a recent trend toward deregulation of virtual assets in the US and Korea, but no specific laws or guidelines have been established yet. This means that the existing guidelines must be followed until the new system is operational,” The Korea Herald quoted a representative of the regulator as saying. The FSS announcement sparked outrage among ETF providers because these rules do not apply to retail investors. However, many exchange-traded funds in South Korea have been heavily investing in U.S. crypto firms. For example, Coinbase shares make up 14.6% of the ACE US Equity Best Seller ETF, managed by Korea Investment Trust Management. Other such products include KoACT US Nasdaq Growth Company Active ETF, KoACT Global AI & Robot Active ETF, TIMFOLIO US Nasdaq 100 Active ETF, and others. The FSS acknowledged that implementing changes, especially for passive ETFs, will be difficult. Therefore, the regulator’s instruction is primarily intended to ”encourage caution” when launching new products before the regulatory environment in South Korea changes. At the same time, investors expect these changes to be implemented in the near future. These expectations are linked to the victory of pro-cryptocurrency candidate Lee Jae-moon in the presidential election.
