The crypto world was in a frenzy following the US Securities and Exchange Commission’s (SEC) decision to approve the issuance of spot Bitcoin ETF. However, the South Korean financial watchdog is not yielding to the ETF buzz by maintaining its ban on crypto-based transactions.
No Crypto ETF
South Korean local media outlets have reported that the Financial Service Commission (FSC) has reaffirmed its stance to enforce the law prohibiting financial institutions from developing Bitcoin-based exchange-traded funds (ETFs). According to a regulatory body representative, as the local news site Kyunghyang reported, the US’s decision to allow the issuance of spot Bitcoin ETFs does not require re-evaluating the country’s existing regulatory restriction.
The official added that upholding this restriction helps safeguard investors and maintain financial market stability, thus protecting investors against risks associated with crypto-related investments.
According to the commission’s representative, the regulatory stance in South Korea remains unaffected by the recent developments in the ETF landscape in the United States. It is worth noting that the US SEC recently green-lights the issuance of crypto-based ETFs following prolonged delays.
South Korea’s ETF Scope
The Capital Markets Act influences the parameters for acceptable underlying assets in investment contract securities, including ETFs. These assets are limited to financial investment instruments, traditional currencies, and common commodities.
Surprisingly, cryptocurrencies are noticeably absent from the list mentioned above. Per the regulatory stance established in 2017, South Korea maintains its stance against classifying cryptocurrencies as financial assets.
Furthermore, the government has implemented a regulation that forbids financial institutions from participating in crypto-related investments. As a result, the regulatory body has adopted a prudent stance, as evidenced by the ongoing restriction on underlying assets.
By imposing this limitation, investment vehicles like exchange-traded funds are restricted to conventional financial products and commodities, thereby eliminating the burgeoning cryptocurrency products.
Crypto Regulatory Pattern
Meanwhile, South Korea has been drafting a two-part crypto regulation, the first of which was enacted last year and will be implemented in July 2024. The forthcoming phase of the Crypto Act aims to develop the second element, which seeks to institute unambiguous regulations concerning the issuance, listing, and delisting of crypto assets.
The government has enacted several laws and regulations to ensure the security and safety of the cryptocurrency market in South Korea. Consequently, the South Korean cryptocurrency sector follows regulatory guidelines established under the Digital Asset Basic Act (DABA), which serves as an all-encompassing legal framework.o
Furthermore, the act facilitates technological innovation while establishing the necessary regulations to prevent illicit behavior by market participants. It does so by establishing a regulatory framework that strikes a balance between consumer protection and economic development.
Meanwhile, the regulation of digital assets by the South Korean government has been approached with prudence, as the FSC enforces stringent Anti-Money Laundering (AML) and securities regulations.
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