South Korea’s FSS Directs Managers to Curb U.S. Crypto Stock Exposure Under 2017 Policy

South Korea’s Financial Supervisory Service (FSS) has directed local asset managers to curb exposure to stocks of major U.S. cryptocurrency firms, including Coinbase Global (COIN) and MicroStrategy (MSTR), as part of ongoing regulatory scrutiny of crypto-linked investments [1][3]. The advisory, issued in early July 2025, aligns with a 2017 policy that prohibits regulated financial entities from holding cryptocurrencies or derivative products on their balance sheets [2]. While the FSS clarified that the guidance is non-binding, it emphasizes compliance with existing rules until a formal regulatory framework is established. The directive targets both active and passive ETFs, particularly those with significant allocations to crypto stocks, such as the ACE US Equity Best Seller ETF, where Coinbase shares constitute 14.6% of holdings [4].

The FSS’s move reflects concerns over systemic risks tied to the volatility of crypto markets and the potential for institutional investors to overextend their exposure. Regulators highlighted that while global markets like the U.S. are expanding access to crypto ETFs, South Korea remains cautious, maintaining strict bans on direct crypto investments for financial institutions [5]. The advisory also underscores the challenge of balancing investor demand for crypto-related opportunities with regulatory prudence. For example, passive ETFs tracking indices that include crypto firms struggle to reduce exposure without deviating from benchmark requirements, creating compliance dilemmas for managers [6].

Industry stakeholders have criticized the FSS’s approach as uneven, noting that the restrictions do not apply to retail investors. This has prompted some ETF providers to explore indirect strategies, such as investing in biotech firms with crypto infrastructure ties, to circumvent domestic constraints [5]. Meanwhile, the FSS acknowledged the difficulty of implementing changes for passive funds but stressed that the guidance aims to “encourage caution” ahead of potential regulatory reforms. Analysts speculate that the upcoming presidential election, with pro-cryptocurrency candidate Lee Jae-moon’s victory, could accelerate policy updates [1].

The FSS’s stance reinforces South Korea’s historical prioritization of risk mitigation over innovation in the crypto space. While the government has explored central bank digital currencies (CBDCs) and permitted limited crypto trading, it continues to exclude financial institutions from direct involvement in virtual assets. This contrast with U.S. and European markets, where crypto ETFs are gaining traction, highlights the regulatory divergence shaping global investment trends. Until new rules are formalized, asset managers must navigate existing restrictions, balancing investor appetite with the FSS’s call for prudence.

Source:

[1] [Foreign Crypto Exposure Spurs Korean ETF Curb](https://99bitcoins.com/news/altcoins/south-korea-urges-asset-managers-to-reduce-etf-allocations-to-coinbase-strategy-to-curb-foreign-crypto-exposure/)

[2] [South Korea FSS Issues Verbal Warnings to Asset Firms](https://www.ainvest.com/news/south-korea-fss-issues-verbal-warnings-asset-firms-crypto-investments-reinforces-2017-policy-2507/)

[3] [South Korean Regulator Warns Against COIN, MSTR Stock](https://cryptorank.io/news/feed/ac1c3-korea-warns-against-coin-mstr-etf-portfolios)

[4] [South Korea’s FSS Orders Asset Managers to Reduce Crypto Exposure](https://www.cryptopolitan.com/south-korea-orders-to-reduce-crypto-exposure/)

[5] [South Korea Warns ETFs: Crypto Exposure Too High](https://www.cryptoninjas.net/news/south-korea-warns-etfs-crypto-exposure-too-high-coinbase-microstrategy-in-the-crosshairs/)

[6] [South Korea’s FSS Advises Caution on Crypto ETFs](https://www.ainvest.com/news/south-korea-fss-advises-caution-crypto-etfs-regulatory-uncertainties-2507/)