On October 13, the Ministry of Finance and Economy (MOFE) announced proposed amendments to the Foreign Exchange Transactions Regulations for public comment, pursuant to Article 46 of the Administrative Procedures Act. The proposed amendments are intended to implement the foreign exchange (FX) regulatory easing measures outlined in the Roadmap for KRW Internationalization, announced on July 19, which aims to make the Korean won a freely tradable currency in overseas markets. The proposed amendments and measures for interagency coordination have been discussed on several occasions, including meetings with the American Chamber of Commerce in Korea (April 28 and August 19) and the Market Situation Review Meeting (October 2). The key measures are as follows.
First, prior notification requirements for FX banks’ borrowing transactions and the issuance of Korean won-denominated securities by residents and nonresidents will be replaced with ex-post reporting requirements. Taking into account the prudential regulatory frameworks already applicable to banks*, the government will replace the prior notification requirement for long-term borrowings exceeding USD 50 million with an ex-post reporting requirement for borrowings exceeding USD 100 million. Such borrowings must be reported within two business days. In addition, banks’ Korean won borrowings from nonresidents will be treated in the same manner as foreign currency borrowings, with ex-post reporting required only for amounts exceeding KRW 50 billion. Meanwhile, the prior notification requirement for the issuance of Korean won-denominated securities will also be replaced with an ex-post reporting requirement for issuances of KRW 50 billion or less, in line with the treatment of foreign currency-denominated securities linked to the Korean won, for which ex-post reporting applies to issuances of USD 50 million or less.
* These include the foreign currency Liquidity Coverage Ratio (LCR), FX derivatives position limits, and the macroprudential stability levy.
Second, the reporting thresholds for capital transactions involving Korean won lending and borrowing will be raised, and the cash pooling system will be improved. The notification threshold for residents’ Korean won borrowings from nonresidents will be raised from KRW 1 billion to KRW 50 billion per year, while the threshold for FX banks’ Korean won lending to nonresidents will be raised from KRW 30 billion to KRW 50 billion. Furthermore, the cash pooling system, which allows multinational companies to lend surplus funds and borrow funds to cover shortfalls within a pre-notified limit, will be expanded to include Korean won transactions. The maximum cash pooling limit will also be doubled from USD 50 million to USD 100 million, including Korean won funds.
Third, domestic branches of foreign securities firms will be permitted to borrow foreign currency and Korean won funds from nonresidents under the same conditions as domestically incorporated entities. This measure will ease existing restrictions on such borrowings and facilitate the smooth procurement of funds needed for securities settlement, including settlement facilitation payments. Also, the government will improve the investment-dedicated account system to allow foreign investors to invest Korean won held for domestic securities investment and other purposes in short-term financial products.
The easing of capital transaction regulations under the proposed amendments to the Foreign Exchange Transactions Regulations is expected to enhance the usability of Korean won funds, reduce the burden of FX risk, improve convenience in FX transactions, and support greater flexibility and timeliness in decision-making. At the same time, the government will work closely with relevant authorities to ensure effective risk management, including by closely monitoring potential market impacts arising from the ongoing modernization of the FX system.
On October 13, the first day of the public comment period for the proposed amendments, MOFE held a consultative meeting on FX regulatory easing, chaired by the Director General for International Finance and attended by representatives from the Bank of Korea and financial institutions, including banks and securities firms. Participants discussed the background and significance of the proposed amendments and shared their views. Financial institutions expressed support for the objectives of the amendments to promote Korean won internationalization and welcomed the direction of regulatory easing. The proposed amendments will be finalized after collecting public feedback during the public comment period from October 13 to October 26 and are scheduled to take effect by the end of this year.
Please refer to the attache files.
