Reevaluation of Cryptocurrency Regulations in South Korea

South Korea’s top financial watchdog, the Financial Services Commission (FSC), announced plans to reevaluate the ban on local spot cryptocurrency exchange-traded funds (ETFs) and institutional accounts on crypto exchanges.

According to the local news agency News1, in an annual audit report released on Thursday, the FSC stated that its newly established cryptocurrency committee will review the current ban on digital assets. This marks a shift from the regulator's previous strict stance against digital asset exposure in traditional financial markets.

Following the U.S. approval of spot bitcoin ETFs in January, the FSC reaffirmed its decision to maintain the local ban, citing possible risks to market stability. However, legislators from both the winning Democratic Party and the opposition have been advocating for change. They pledged to support the approval of local spot bitcoin ETFs during their general election campaigns earlier this year.

In May, the winning left-wing party officially requested the FSC to reconsider the ban. Since 2018, South Korean institutional investors have faced strict regulations that prevent them from opening cryptocurrency trading accounts on exchanges.

Investigating Exchange Monopolies

In addition to reviewing ETFs and institutional accounts, FSC chair Kim Byung-hwan announced plans to investigate the monopolistic structure of South Korean digital asset exchanges, particularly regarding Upbit, which dominates the market.

Recent data from CoinMarketCap indicated that Upbit accounted for over 61% of the total trade volume within a 24-hour period, processing more than $1.17 billion. Its market share surged to an average of 80% in March.

Kim’s statements were made in response to Democratic Party lawmaker Lee Kang-il, who expressed concerns over the financial relationship between Upbit and its partner K-bank. According to regulations, cryptocurrency exchanges must maintain user deposits with partner banks.

Lee pointed out Upbit's significant impact on K-bank, noting that Upbit deposits represented 20% of K-bank's total deposits. He cautioned that disruptions in the partnership could lead to a potential bank run.

K-bank, one of South Korea’s pioneering digital banks, is currently preparing for an Initial Public Offering (IPO). Various reports indicate that K-bank's reliance on Upbit poses a risk to its plans for going public.