Updated FX regulations aim to simplify trading for foreign investors

Foreign investors will be able to trade Korea-listed stocks and bonds without navigating complex foreign exchange (FX) procedures and incurring additional costs.

This initiative aims to enhance convenience for foreign investors as part of efforts to improve their access to the Korean onshore capital markets, the Bank of Korea (BOK) said on Wednesday.

The BOK, the Ministry of Economy and Finance, the Financial Services Commission, and the Financial Supervisory Service have collaboratively introduced measures aimed at improving the efficiency and stability of securities settlements and foreign exchange (FX) trading for offshore investors. These measures were developed based on feedback collected through discussions with foreign investors, including insights gathered during a recent investor relations session in London hosted by First Vice Finance Minister Kim Byoung-hwan.

First, offshore investors will be permitted to utilize Korean won overdrafts to alleviate the potential burden of settlement failures. Traditionally, foreign investors have relied solely on local custodian banks for FX transactions, primarily due to complications arising from time differences and intricate interbank transfer procedures. However, under the new framework, foreign investors will have the freedom to select their preferred FX trading institution without concerns about settlement failures. They will have the option to borrow funds for securities settlements, providing reassurances in case any issues arise during the process.

In addition, the government plans to enable investors to purchase securities and settle payments using International Central Securities Depository (ICSD) cash and custody accounts, eliminating the need to open personal accounts. An ICSD is a specialized financial institution that plays a crucial role in facilitating the settlement of cross-border securities transactions. Present FX regulations impose stringent restrictions on the utilization of Korean won obtained through an ICSD, posing an inconvenience for foreign investors who must exchange their Korean won holdings twice. This adjustment seeks to streamline the process and alleviate this burden for investors.

Last but not least, the system will undergo updates to streamline the process for foreign investors utilizing an omnibus account under the Capital Markets Act. This enhancement will allow them to exchange currencies conveniently, eliminating the need to appoint a separate dedicated representative or open individual cash accounts for each investment.