The Korean Financial Regulatory Agency Recommends ETF Funds Reduce Exposure to Crypto-Related Stocks, Causing Conflicting Reactions from Asset Managers Regarding Feasibility and Fairness.
On July 23, the Korean Financial Supervisory Service (FSS) issued an informal directive, recommending domestic asset management companies limit the stock proportion of crypto-related enterprises in ETF investment portfolios.
This move occurs in a context where the legal framework for digital assets in Korea is still being refined, with FSS wanting to send a clear message about necessary caution. The specific stocks mentioned include Coinbase and MicroStrategy.
However, this recommendatory directive immediately faced feasibility doubts. Fund managers argue that unilaterally removing a specific stock from a passive ETF is nearly impossible without adjustment from the reference index provider.
An anonymous fund manager shared with The Korea Herald: "Removing a stock when the index hasn't changed will create significant deviation in index tracking," contradicting the fundamental principle of ETF funds.
Additionally, professionals question the fairness and effectiveness of this recommendation. In reality, Korean investors can still easily access crypto asset stocks through ETFs listed in the United States.
Therefore, applying restrictions only to domestic products might disadvantage domestic asset management companies, while investment Capital will still seek to move overseas. "Restricting domestic ETFs will not prevent investment Capital flow," an industry expert noted.
The FSS recommendation is not without basis. Recent data shows the proportion of crypto-related stocks in Korean ETFs has increased significantly. For example, Korea Investment Management's Ace US Stock Bestseller ETF currently holds 14.6% Coinbase stock.
Similarly, KoACT Nasdaq Growth Active ETF owns 13.4% of its investment portfolio as Coinbase stocks (7.4%) and MicroStrategy (6%). Other funds like KoACT Global AI & Robotics Active ETF and Timefolio Nasdaq 100 Active ETF also have exposure rates exceeding 10%.
However, this FSS move reveals a contradiction with the more open trend from other Korean regulatory agencies. Recently, the country's SME and Startup Ministry proposed removing some barriers, opening doors for crypto asset companies to enjoy tax benefits.
Meanwhile, major domestic banks are actively registering stablecoin-related brands, and the Korean Central Bank is considering allowing commercial banks to issue stablecoins.
