On June 8, 2023, the Ministry of Economy and Finance (the “MOEF”) announced a partial amendment to the Foreign Exchange Transaction Regulations (the “Regulations”). The amendment will take effect as of July 4, 2023.

The amendment aims to minimize the burden of conducting ordinary foreign exchange transactions on a day-to-day basis. The amendment responds to the criticism that the inflexible prior reporting requirements, strict penalties, and complicated procedures imposed by the Regulations hinder foreign exchange transactions, even though the demand for the foreign exchange transactions is on the rise both quantitatively and qualitatively.

The key provisions of the amendment are as follows:
 

• Under the existing Regulations, those who intend to remit to or collect from another country more than USD 50,000 a year are required to submit documents evidencing the details and amount of such cross-border remittance or collection. The existing Regulations also require filing an advance regulatory report before conducting a capital transaction, if it involves remitting USD 50,000 or more per transaction or on a cumulative annual basis.
  
  The amendment will raise the threshold amount from USD 50,000 to USD 100,000. This increase will expand the size of transactions exempt from the documentary submission or prior reporting requirements.
   

• In addition, the MOEF has announced its plan to switch to a so-called “negative” system whereby the foreign exchange transaction market will be fully liberalized, regulating only limited situations. Ahead of such a full-scale transformation of the Foreign Exchange Transactions Act, the amendment will lower the regulatory burden of complying with various advance reporting requirements, such as those applicable to foreign currency borrowing by a resident, foreign currency lending to a non-resident, and creation of a claim arising from a debt guarantee agreement with a non-resident, which are generally viewed as having little impact on the stability of the foreign exchange market.
  
  The amendment will replace the advance reporting requirement with post-facto reporting, which should be completed within one month of conducting the relevant transaction.
   

• Under the existing Regulations, a resident, who intends to borrow more than USD 30 million in foreign currency from a non-resident, is required to file an advance report for large-scale foreign currency borrowing with the MOEF through the resident’s designated foreign exchange bank.
  
  The amendment will raise the threshold amount from USD 30 million to USD 50 million. This threshold increase will make it easier for businesses to borrow funds in foreign currency.
   

• With respect to “offshore local financing” whereby a resident of or local subsidiary in a foreign country borrows funds or receives a payment guarantee for use in that foreign country, the amendment will remove unique provisions governing such “offshore local financing issues” by consolidating them into the section of the Regulations that cover capital transactions relating to loan or debt guarantee agreements.
  
  While the existing Regulations prohibit, in principle, the funds borrowed through “offshore local financing” from being deposited into an account inside Korea, the amendment will allow such domestic deposit of the offshore funds. With this change, business should be able to exercise autonomy and act flexibly when managing foreign currency funds.
   

• Under the existing Regulations, one must file an advance report before making a foreign direct investment and then file an update report on an ongoing basis whenever there is a change in the circumstances which deviates from the filed report. The amendment eliminates the burden of complying with such ongoing update requirement by replacing it with a comprehensive post-facto report to be filed only once a year with less details. The amendment will help simplify the management of foreign direct investment following its completion.
   

• Under the existing Regulations, only four securities firms, which have the equity capital of more than KRW 4 trillion and a short-term finance license, are allowed to conduct general foreign currency exchange business for corporate customers only. The amendment will permit nine comprehensive financial investment business entities (i.e., nine securities firms in total) to conduct the foreign currency exchange business for the general public, as well as corporate customers.
  
  This expansion of the permitted entities will foster competition in the foreign exchange market among financial institutions before the government implements the Phase Two of the financial sector reform, which is expected to liberalize the category of financial business a financial institution can conduct by lowering the licensing barrier across various financial industries.
   

• Under the existing Regulations, it is practice for non-residents, including offshore financial institutions, to effect KRW conversions only through designated accounts established with their Korean custodian bank for the purpose of investing in KRW denominated assets. However, the amendment will allow foreign investors to make foreign exchange conversion with a different financial institution without even opening a new account therewith. Accordingly, foreign investors will be able to deal with any bank of their choice that offers low foreign exchange transaction fees regardless of whether they have an account with it or not.
   

• The Review Committee for Development of Foreign Exchange System will be set up. It will be chaired by the Director of the International Finance Bureau of the MOEF. Government officials from the MOEF, the Financial Services Commission and The Bank of Korea, as well as experts from the private sector, will also join as members. It will serve as a forum for discussing how to interpret laws and regulations that significantly affect market participants’ rights and obligations. Diverse views and opinions are expected to be shared through the committee among the government agencies, the industry, and the academia. The committee will also help add procedural legitimacy to the government interpretation of the foreign exchange laws and regulations.

[Korean Version]