South Korea’s top financial watchdog said it would reevaluate lifting the existing ban on local spot cryptocurrency exchange-traded funds and institutional accounts on crypto exchanges. 

According to local news agency News1, the Financial Services Commission (FSC) said in its report for the annual audit on Thursday that its new cryptocurrency committee, a newly formed advisory group for discussing digital asset policies, will review the current ban.

This signals a shift from the regulator's strict opposition to digital asset exposure in traditional financial markets.

Following the January approval of spot bitcoin ETFs in the U.S., the regulator reaffirmed its decision to maintain the ban on local crypto ETF listings, citing potential risks to financial market stability.

The country’s legislators have been calling for change. The winning Democratic Party and the opposition party had pledged the approval of local spot bitcoin ETFs in their general election campaigns earlier this year. The winning left-wing party reportedly announced in May that it would request the FSC to review the ban.

Since 2018, South Korean institutional investors have been effectively prevented from establishing cryptocurrency trading accounts on exchanges under strict guidance from the FSC.

In addition to reviewing ETFs and institutional crypto accounts, FSC chair Kim Byung-hwan said he would investigate the monopolistic structure of South Korean digital asset exchanges, which Upbit dominates.

Out of the country’s five fully licensed exchanges, Upbit handled over 61% of the trade volume in the past 24 hours, processing over $1.17 billion, according to CoinMarketCap data. Its market share soared to an average monthly of 80% in March.

Kim’s statement during the audit came in response to Democratic Party lawmaker Lee Kang-il, who also raised concerns about the financial relationship between Upbit and its partner K-bank. South Korean regulations require cryptocurrency exchanges to have user deposits maintained by partner banks.

Lee expressed concerns about Upbit's significant influence on K-bank, citing that Upbit deposits made up 20% of K-bank's total deposits. Lee warned of a potential bank run if Upbit and K-bank's partnership were disrupted.

K-bank, one of South Korea’s earliest digital banks, is preparing for an IPO. Several local news reports have cited K-bank's reliance on Upbit as a risk to the neo bank's plan to go public.

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