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South Korea Retains Crypto ETF Ban Despite SEC's Bitcoin Approval

The SEC's historic Bitcoin ETF approval has failed to inspire South Korea regulators to lift their crypto ETF ban

Photo by Daniel Bernard / Unsplash

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Despite the SEC's historic decision yesterday to approve Bitcoin ETFs, South Korea is not budging on its crypto ETF ban.

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An official from South Korea’s Financial Services Commission (FSC) told local media that the SEC's approval has not prompted the country's regulator to reconsider its stance.

“The SEC also reluctantly allowed virtual asset ETFs on a limited basis in response to the court decision,” the official said.

The FSC expressed concerns including unauthorized fund outflows, money laundering, and potential speculative losses. These concerns were pivotal in their decision to maintain the ban, first imposed in December 2017, which prohibits financial institutions from investing in cryptocurrencies.

South Korea's Capital Markets Act limits the range of eligible underlying assets for investment contract securities, like ETFs, to financial investment instruments, currencies, and ordinary commodities. Cryptocurrencies are excluded and are not recognized as financial assets.

The SEC's approval was hoped to serve as inspiration for other regulators to adopt a similar approach to crypto ETFs.

Speaking to Blockhead Ripple's APAC Policy Director, Rahul Advani, suggested the SEC's decision could encourage other regulators to consider greenlighting similar products.

"Hong Kong's SFC released a circular a few weeks ago indicating that they are open to retail-focused ETFs being listed in Hong Kong," he said. "It'll be interesting to see how this will impact the industry in the medium term. For the long term, it is positive for the industry."

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From 2024, companies in South Korea will be required to publicly disclose their cryptocurrency holdings and issuances as part of their financial statements in accordance with rules set out by South Korea's Financial Services Commission.

The government body aims to align crypto accounting standards with traditional financial reporting, stating that current financial statements have lacked accurate details regarding corporate ownership of cryptocurrencies.

Earlier this week, South Korean cryptocurrency exchange Upbit was awarded a Major Payment Institution (MPI) license from MAS

The license allows Upbit to provide a wider range of crypto services in the Little Red Dot such as digital payment token services, custody, and remittance services. Upbit will also be able to collaborate with local financial institutions to offer crypto solutions.

In October, Upbit secured an in-principle approval from MAS, under which it operated as it awaited the full license.

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The provisional license enables Upbit Singapore to continue providing regulated Digital Payment Token services in compliance with the Payment Services Act 2019 whilst awaiting the grant of a full licence.

"The MAS license reinforces our commitment to comply with rigorous regulatory standards, ensuring the utmost security for your transactions and funds," the firm said in its announcement.