FSS Advises Asset Management Firms to Refrain from Including Virtual Asset-Related Companies in ETF Portfolios

The Financial Supervisory Service (FSS) recently recommended that domestic asset management firms refrain from expanding the proportion of virtual asset (cryptocurrency)-related companies in exchange-traded fund (ETF) portfolios.

According to the industry on the 23rd (local time), the FSS advised some asset management firms not to excessively include virtual asset-related companies such as Coinbase and Strategy in ETF portfolios.

In particular, it was noted that the 'Emergency Measures on Virtual Currency' announced by the financial authorities in 2017 are still valid. These measures prohibit financial companies within the system from holding, purchasing, acquiring collateral for, or making equity investments in virtual assets.

The FSS's verbal guidance is interpreted as taking into account the recent rapid increase in 'virtual asset theme' stocks—such as mining companies and virtual asset exchanges—being included in ETF markets. In fact, the 'ACE U.S. Stock Bestseller ETF' holds Coinbase at a 14.59% share, and in the case of the 'KoAct U.S. Nasdaq Growth Companies Active ETF,' virtual asset companies such as Strategy account for about 13%.

However, the industry maintains that it is difficult to promptly reduce the proportion of virtual asset stocks. Active ETFs can adjust component weights, but for passive ETFs, unless the index provider changes the constituents, they cannot exclude them. Additionally, there have been claims that restricting only domestic ETFs creates fairness issues, as domestic investors are able to buy 'virtual asset investment company ETFs' traded in the U.S.

An FSS representative said, "Although there are signs of regulatory easing related to virtual assets recently, no specific laws or guidelines have been established yet," adding, "Until new regulations are fully in place, it is required to comply with existing guidelines."