On January 25, 2023, the Financial Services Commission (“FSC”) announced regulatory improvements to promote foreign investments in Korea, including (i) abolishing the foreign investor registration requirement, (ii) relaxing the restrictions on over-the-counter (“OTC”) transactions by foreign investors, (iii) eliminating the investment reporting requirement to facilitate the use of omnibus accounts by foreign investors, and (iv) requiring public disclosures to be made in both Korean and English.

As a follow-on measure to the above, the FSC announced proposed amendments to the Financial Investment Business Regulations (“FIBR”) on July 7, 2023. The proposed amendments are intended to significantly improve regulations that have acted as barriers for global investors’ investments in the Korean market, such as the foreign investor registration requirement which has been in place for over 30 years since its introduction in 1992. Not only foreign investors but also major KRX-listed companies with a significant foreign ownership would be well-advised to be mindful of these changes when responding to shareholders and conducting shareholder meetings.

Key details of the proposed amendments to the FIBR are summarized below.
 

The proposed amendments will allow foreigners to invest in KRX-listed securities without a prior registration process by eliminating the foreign investor registration requirement. Foreign investors will be able to invest in KRX-listed securities by using their Legal Entity Identifiers (in the case of corporate entities) and passport numbers (in the case of individuals) as a means of identification. Foreigners who have already registered themselves as foreign investors will be allowed to continue using the “investment registration numbers” issued to them at the time of registration.
 

Under the current laws and regulations, foreign investors may only trade listed securities on the Korea Exchange, and OTC transactions are permitted only for certain exceptional circumstances. OTC transactions of foreign investors involving listed securities have been limited in practice because a prior review and approval must be obtained from financial supervisory authorities for such transactions with the exception of certain specific types of transactions that can be reported on an ex-post basis (e.g., foreign direct investment, exercise of appraisal rights of dissenting shareholders, exercise of stock options, inheritance/gift, exercise of the rights associated with CBs/BWs, and repurchase agreement, etc.).

The proposed amendments will significantly expand the scope of OTC transactions eligible for ex-post reporting to cover those transactions that do not require a close review and are highly demanded by market participants. Specifically, ex-post reporting will be permitted for the following types of OTC transactions: (i) acquisition and disposition of shares resulting from spin-offs and mergers of a foreign entity, (ii) acquisition and disposition of securities resulting from dividends in kind paid by a foreign entity, (iii) trading or provision as collateral of Korea Treasury Bonds (“KTBs”) and Monetary Stabilization Bonds (“MSBs”) that are settled between foreigners through an omnibus account held by an international central securities depository, (iv) OTC transfer of securities between foreigners where there is no change in the beneficial owner, and (v) acquisition and disposition of shares resulting from in-kind delivery following the liquidation of a foreign fund.
 

The omnibus account system allows foreign securities companies, etc. to open accounts to collectively process (i.e., place orders and settle) multiple foreign investors’ transactions through the same omnibus account. Although first introduced in 2017, it has not been used by foreign investors because each end-investor investing in KRX-listed securities through an omnibus account is obligated to report the details of investment immediately at the time of settlement (T+2).

The proposed amendments will abolish such investment reporting requirement for end-investors that invest in KRX-listed securities using an omnibus account. By instead requiring foreign investment firms to record, retain and provide records relating to the management of omnibus accounts (e.g., information on foreign investors and transaction details), the proposed amendments will facilitate investments through omnibus accounts and also establish the management framework for regulatory purposes.
 

The proposed amendments to the FIBR will come into effect on December 14, 2023. Please note, however, that the amendment to Article 6-7 (1) (xviii) of the FIBR—which allows ex-post reporting of OTC transactions that involve trading or provision as collateral of KTBs and MSBs settled through an international central securities depository between foreigners using an omnibus account—will enter into force on the date of promulgation of the amended FIBR.

[Korean Version]