On November 23, 2017, Korea’s Financial Services Commission (″FSC″) issued both the amendment to the Enforcement Decrees of the Act on Reporting and Use of Certain Financial Transaction Information (the “Amendment”), and the enactment of the Regulation on Examination and Sanctions regarding Reporting, etc. of Certain Financial Transactions Information (the “Regulation”). The Amendment has become effective on February 27, 2018, and the Regulation is expected to become effective on July 2018.

Background:

In 2019 the “Financial Action Task Force on Money Laundering” expects to publish the results of their mutual evaluations. In light of this, the Korean bank′s branches and subsidiaries operating in the US are increasingly becoming subject to greater scrutiny by the US authorities on their compliance with the Anti-Money Laundering (“AML”) regulations.

The Korean authorities are also calling for strengthened AML compliance. On September 20, 2017, the FSC proposed amendments to the Regulations on Supervision of Corporate Governance of Financial Companies to organize key AML obligations into its Internal Control Standards, aiming to impose AML compliance duties and liabilities on the financial institutions’ management. These amendments have come into effect on April 1, 2018.

Key Aspects of the Amendment and the Regulation:

The Amendment and the Regulation are part of the government’s effort to strengthen AML regulations. Below we highlight key aspects of these two legislative efforts.

• Financial institutions (e.g., financial holding companies, Korea Securities Finance Corp. (KSFC), collective investment companies, trust companies, and Korean Federation of Community Credit Cooperatives (KFCC)) were previously exempted from the AML internal control obligations we name below. Now, these AML internal control obligations will apply to all financial institutions without exception: (i) designating a reporting officer and establishing a reporting system for both the Suspicious Transaction Report (STR) and the Cash Transaction Report (CTR); (ii) preparing business guidelines on AML; and (iii) providing regular AML education and training to employees.
• Financial institutions will be subject to strengthened duties to check the “real name” of the representative of corporate clients, which will entail matching the name and resident registration number with the representative’s ID, as opposed to simply identifying the name of the representative, as it had been previously done.
• Specific standards for imposing administrative fines will be established based on the type of violation.
• Sanctions regarding AML violations – heavier than or equivalent to suspension of business (for financial companies), or suspension of duty (for its officers) – must be imposed by resolution of the Korea Financial Intelligence Unit’s (“KOFIU”) Sanctions Committee, which is comprised of four KOFIU officials and two external experts.

Significance & Implications:

These recent AML legislative movements show that financial institutions should prepare for a stricter regulatory environment. Financial institutions should regularly check whether their internal control system is properly being updated to reflect the changing regulatory requirements. Customers should also routinely review whether there are any changes to the procedures of financial transactions.