South Korea to Enhance Foreign Investment with Eased FX Regulations

SEOUL - In a significant move to boost foreign investment, South Korea announced on Wednesday its plan to relax foreign exchange (FX) regulations for offshore investors, aiming to facilitate easier transactions in stock and bond trading within the country. The Ministry of Finance and Economy stated that these adjustments are part of a broader revision to the Foreign Exchange Transactions Regulations expected to be finalized within the first quarter.

According to Yonhap News Agency, the revised regulations will permit offshore investors to have overdrafts of Korean currency, enhancing their ability to manage currency exchange costs more efficiently. This initiative addresses the longstanding issue of settlement failures caused by time differences and other complications, which have historically limited foreign investors to dealing primarily with local custodian banks. With the new policy, investors will have the flexibility to select financial institutions that offer more favorable conditions, provided they inform their custodian banks of ongoing transactions with other banks.

Additionally, the government plans to liberalize the use of Korean won through international central securities depositories (ICSDs), which has been tightly controlled, complicating the investment and settlement process for ICSD holders. The new measure will allow offshore investors to freely transfer Korean won between their accounts and ICSD accounts with proper verification.

The ministry also announced plans to exempt foreign investors from certain requirements, such as having standing agents or opening cash-based accounts for FX transactions if they utilize omnibus accounts through global asset management companies or foreign financial investment firms. This move is part of South Korea's efforts to enhance the accessibility of its financial market to foreign investors and to address issues related to FX trading and Korean won-based transactions.

"The Korean government is strengthening communication with offshore investors to clear uncertainties surrounding foreign exchange trading and Korean won-based transactions," the ministry stated, emphasizing its commitment to improving the investment environment for foreign entities.

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