With the recent amendments to the Guidelines for Foreign Exchange Business of Foreign Financial Institutions (the “Amendment”), foreign financial institutions are now permitted to participate in the domestic foreign exchange market. As a result, (i) foreign insurers can register as a Registered Foreign Institution (“RFI”), (ii) the range of transactions that RFIs can conduct has been broadened to enhance convenience for conducting FX transactions, and (iii) the grace period for RFI’s requirement to report their FX transaction details to the Bank of Korea has been extended to June 30, 2025.
Key details of the Amendment are as follows.
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Expansion of Eligible Entities for Registration as RFI
Previously, only financial institutions engaging in banking, investment trading, or brokerage service business in a country overseas were eligible to register as an RFI. However, with the Amendment, any financial institution engaging in insurance business abroad is now also eligible to register as an RFI.
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Easing FX Transactions via RFIs
Before the Amendment, an RFI was only allowed to conduct FX trading with foreign exchange market participants through foreign exchange brokers, unless such FX trading’s counterparty was an RFI’s agent or another RFI within the group which such RFI was affiliated with. However, the Amendment now allows such RFIs to conduct direct trading with all FX market participants.
Before the Amendment, the permitted scope of RFIs’ FX transaction was limited to trades with their non-resident customers in connection with such customers’ trading of stocks, bonds, or domestic exchange-traded derivatives. With the Amendment, RFIs are now permitted to do FX transactions for all types of underlying transactions, including import and export payments. As a result, RFIs can do FX transactions for import and export payments for multinational companies that are headquartered in Korea or overseas, and also for salary remittances for employees of head offices or branch offices on a cross-border basis.
Lastly, the Amendment provides for grounds for RFIs’ making deposits with or withdrawals from business-purpose KRW accounts and non-resident free KRW accounts. As a result, RFIs can now utilize business-purpose KRW accounts established with a local bank to conduct settlement services for KRW-denominated non-capital transactions and securities transactions by non-residents. Additionally, global custodian banks registered as RFIs are now permitted to use business-purpose KRW accounts as investment purpose accounts.
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Extended Grace Period for RFIs’ Reporting Requirement
Under the Amendment, an RFI is required to submit (i) daily reports to the Bank of Korea of its foreign exchange transaction details and (ii) monthly reports to the Bank of Korea of, among others, daily excess amount of FX forward purchase and sale transactions and details of any KRW borrowing from its agents (although the effective date of the reporting obligation has been delayed through the regulators’ interpretative ruling). Under the Amendment, the grace period for RFIs to comply with various reporting requirements has been extended to June 30, 2025. Consequently, RFIs will be required to begin making these reports starting from July 1, 2025.
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[Korean Version]
