South Korean Legislator Introduces Bill for ETF Inclusion of Digital Assets

Key Takeaways:

• A legislative proposal aims to broaden South Korea’s Capital Markets Act to encompass digital assets as underlying assets for ETFs.
• Trust companies may be authorized to legally hold and manage digital assets, with clearer regulations regarding delegation and custody.
• Some industry experts caution that trading derivatives linked to digital assets necessitates stringent risk management protocols.

On June 27, Min Byung-deok, a member of the South Korea Democratic Party, presented a bill to amend the Capital Markets Act, as reported by News1. This initiative seeks to widen the range of underlying assets for ETFs to incorporate digital assets such as Bitcoin.

The proposed amendment creates a legal structure that permits trust companies to hold and manage digital assets as trust property. It also specifies the conditions for delegating the custody of virtual assets to registered service providers.

Lawmaker Proposes Bill to Enable Digital Asset-Based ETFs

This bill aligns with President Lee Jae-myung’s objective to incorporate digital assets into the financial framework. Additionally, a separate plan from the Financial Services Commission would allow institutional investors with assets exceeding KRW 10 billion to begin trading virtual assets by late 2025.

Proponents assert that the amendment lays a legal groundwork for digital asset-based ETFs and enhances investor protections through well-defined regulations on trust management. It also proposes measures to broaden the derivatives market, facilitating risk management strategies utilizing digital assets.

Critics contend that trading derivatives associated with digital assets demands rigorous risk management. Some industry stakeholders believe that only firms with adequate capabilities should be permitted to offer such products.

At present, South Korea prohibits ETFs that utilize digital assets as underlying assets, compelling domestic investors to engage in trading overseas or depend on unregulated markets. The new legislation could establish a regulated avenue for domestic participation in this market.

South Korea Moves Forward Amid Global Uncertainty

If enacted, the amendment would enable asset managers to create financial products linked to digital assets, enhance the diversity of the ETF market, and improve transparency and oversight within the sector. Min stated that the bill would foster growth while reinforcing protections for Korean investors.

As global regulators consider frameworks for digital asset ETFs, numerous jurisdictions continue to struggle with fundamental issues regarding valuation, custody, and cross-border compliance. In the absence of standardized regulations, countries often progress at varying paces, which may result in regulatory arbitrage and uneven protections for investors.

Industry analysts suggest that any changes to ETF regulations could impact broader discussions concerning digital asset taxation, reporting standards, and the role of digital finance in national growth strategies.

Frequently Asked Questions (FAQs)

Why are some concerned about derivatives provisions?

Critics maintain that derivatives linked to digital assets present risks that should be overseen by firms with adequate risk management controls.

How does this compare with global trends?

While the U.S. has authorized Bitcoin and Ethereum spot ETFs, many nations are still deliberating regulations surrounding custody, taxation, and investor protections.

Could this affect other parts of South Korea’s financial regulation?

Potentially. Analysts indicate that ETF regulations frequently intersect with tax policies, reporting standards, and national digital finance strategies.

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