South Korea Enforces 2017 Crypto Investment Rules Orders Asset Managers to Cut Exposure

South Korea’s Financial Supervisory Service (FSS) has directed domestic asset managers to scale back investments in cryptocurrency-related equities and exchange-traded funds (ETFs), aligning with a 2017 policy that prohibits regulated institutions from holding crypto-linked assets. The guidance, conveyed informally to firms, specifically targets exposures to U.S.-listed companies such as Coinbase (NASDAQ: COIN) and MicroStrategy (NASDAQ: MSTR), as well as crypto ETFs. The FSS emphasized adherence to existing rules until formal regulatory updates are announced, reflecting heightened caution amid ongoing global debates over crypto oversight [1].

The directive comes amid speculation about potential regulatory easing in Seoul. However, the FSS clarified that no changes to current restrictions are in effect, with a spokesperson reiterating that institutions must follow the 2017 framework until revised guidelines are issued. This ambiguity has left asset managers navigating uncertainty, as market dynamics evolve but regulatory clarity remains absent [2].

Industry participants have already begun adjusting their strategies. Some firms are reducing equity stakes in Coinbase and MicroStrategy, while others are limiting allocations to crypto ETFs. Analysts note that the FSS’s informal approach—lacking binding legal force—may lead to inconsistent compliance across firms. While the move could dampen institutional demand for crypto-linked stocks and impact market liquidity, its effectiveness remains subject to interpretation [3].

South Korea’s regulatory stance reinforces its historically risk-averse approach to crypto assets. The country has maintained strict controls, including bans on crypto advertising and stringent licensing requirements for exchanges. The latest directive underscores this caution, particularly as regulatory frameworks for digital assets remain ambiguous in both South Korea and the U.S. For example, the U.S. Securities and Exchange Commission’s (SEC) recent actions against crypto ETF applications highlight broader challenges in defining oversight for the sector [4].

The FSS’s guidance may also indirectly influence investor sentiment. By discouraging institutional exposure to crypto equities and ETFs, the regulator could signal skepticism about the sector’s viability under current rules. However, the absence of concrete policy changes means market participants remain in a holding pattern, balancing regulatory risks against potential opportunities in a maturing crypto ecosystem [5].

As South Korea’s regulatory environment for crypto assets continues to shape global market dynamics, the FSS’s informal guidance reinforces a focus on risk mitigation. Asset managers must now navigate the tension between domestic regulations and international trends, as crypto markets evolve within a fragmented and uncertain regulatory landscape.

Sources:

[1] [South Korea Urges Asset Managers to Limit Exposure to Crypto Stock Like Coinbase, Microstrategy] [https://cryptodnes.bg/en/south-korea-urges-asset-managers-to-limit-exposure-to-crypto-stock-like-coinbasemicrostrategy/]

[2] [South Korea’s Finance Regulator Warns Asset Managers on Crypto ETFs] [https://www.tokenpost.com/news/regulation/16427]

[3] [South Korea Orders Asset Managers to Limit Crypto ETF Exposure Amid Regulatory Uncertainty] [https://defi-planet.com/2025/07/south-korea-orders-asset-managers-to-limit-crypto-etf-exposure-amid-regulatory-uncertainty/]

[4] [South Korea Tightens Grip on Crypto Investments Affecting Coinbase, Coin] [https://www.gurufocus.com/news/2996435/south-korea-tightens-grip-on-crypto-investments-affecting-coinbase-coin]

[5] [South Korea Warns Fund Managers to Reduce Exposure to Crypto Stocks] [https://investingnews.com/cryptocurrency-market-recap/]