South Korea’s top financial regulator, the Financial Services Commission (FSC), is reportedly initiating a review process to reconsider its stance on the ban on spot cryptocurrency exchange-traded funds (ETFs).

This comes after forming a new cryptocurrency advisory committee within the regulator, signaling a potential shift from its earlier, more stringent stance on digital asset exposure in traditional financial markets.

The committee is tasked with reevaluating current regulations that prevent listing spot crypto ETFs in the country.

Reason For The Review To Unban Crypto ETFs

The report from a local news agency, News1, particularly revealed this update concerning South Korea’s looking to lift the ban on spot ETFs. News1 wrote in the report:

The Financial Services Commission announced its intention to review approval of virtual asset spot listed index funds (ETFs) and permission for corporate virtual asset accounts through the Virtual Asset Committee.

According to News1, the South Korean regulator reassessed its stance on spot crypto ETFs due to “constant voices calling for correction.” The report read:

In the United States, Bitcoin and Ethereum spot ETFs are listed and traded, but virtual asset ETFs are blocked in Korea. In addition, the opening and trading of corporate virtual asset accounts are also prohibited, and there have been constant voices calling for correction.

Meanwhile, in addition to reviewing the ban on crypto ETFs, the FSC’s chair, Kim Byung-hwan, has indicated that the regulator will also examine the “monopolistic structure” of South Korean digital currency exchanges, with a particular focus on Upbit, which currently dominates the market.

Of the five fully licensed cryptocurrency exchanges in South Korea, Upbit controls a significant portion of the trade volume, accounting for more than half of the market.

This dominance has raised concerns among lawmakers and regulators, with Democratic Party lawmaker Lee Kang-il bringing attention to Upbit’s close financial relationship with its partner, K-bank.

South Korean regulations mandate that digital currency exchanges maintain user deposits through partner banks, and K-bank has played a pivotal role in facilitating Upbit’s operations.

Lee highlighted that Upbit’s deposits represent 20% of K-bank’s total deposit holdings, raising concerns about the potential financial risk to K-bank, particularly in the event of a disruption to their partnership.

What This Means For The Market

It is worth noting that the review of South Korea’s crypto ETF ban and the investigation into the country’s dominant exchange could lead to significant changes in the local digital asset market.

If the ban on spot crypto ETFs is lifted, it would mark a notable shift in South Korea’s regulatory approach to cryptocurrencies, opening up new investment opportunities for institutional and retail investors.

However, the review’s outcome remains to be seen as the regulator continues to weigh the potential risks to market stability.