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Newsletter | April 2017, Issue 1
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BANKING
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Korean Lawmakers Pass the Liberalized Foreign Exchange Transactions Law to Permit Non-Financial Institutions to Conduct Foreign Exchange Business
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As part of an effort to deregulate the foreign exchange market in Korea, on December 29, 2016, the National Assembly passed an amendment to the Foreign Exchange Transactions Law (the ″FETL″). The amendment is slated to take effect on July 18, 2017. In addition, the draft amendment to the Enforcement Decree of the FETL was announced on February 23, 2017 (covering the specific conditions that a non-financial institution must meet to register as a specialized foreign exchange business operator).
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Key Changes:
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The two key elements are: (i) non-financial institutions are now allowed to engage in certain foreign exchange businesses upon registration with the Korean government (specifically, the Ministry of Strategy and Finance (the ″MOSF″)); and (ii) offshore debt collection requirement for Korean residents has now been abolished (previously, Korean residents were required to collect certain claims against offshore debtors within a certain period of time).
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Framework for Registering Non-Financial Institution as a Specialized Forex Business Operator
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A noteworthy element of the amendment is the introduction of a framework for registering a non-financial institution as a specialized foreign exchange business operator. In the past, only “financial institutions” (as defined in the FETL) were permitted to engage in the foreign exchange business. As a result, non-financial institutions, including Fintech companies, could not engage in any foreign exchange business (e.g., cross-border wire transfer business) even though they had innovative technology to facilitate cross-border wire transfer transactions.
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Under the amendment, even non-financial institutions can now engage in foreign exchange business if they register with the MOSF as specialized foreign exchange business operator. This registration will enable the registered non-financial institution to perform various foreign exchange services, such as transferring or receiving foreign currency-denominated funds on a cross-border basis and converting the foreign currencies.
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Offshore Debt Collection Requirement for Korean Residents Abolished
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The amendment also abolished the offshore debt collection requirement for Korean residents. In the past, if a Korean resident had a claim of more than USD 500,000 against a non-resident, the Korean resident was required to collect the amount of the claim from the non-resident and repatriate it to Korea within three years.
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Following the FETL amendment, Korean companies will no longer be burdened by this requirement to collect their offshore claims within three years.
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The Korean government will retain the power to invoke the collection requirement in the event of extraordinary events with a materially adverse impact on the national economy, such as natural disaster. The amendment stipulates a severe penalty (imprisonment up to five years or criminal fine up to KRW 500 million) for failing to comply with the collection requirement in such circumstances.
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