Regulator Proposes Welcome Changes To Promote Foreign Investment In Korea

• Law Firm: YOON & YANG LLC
• Subject Matter: Finance and Banking, Government, Public Sector, Financial Services, Inward/ Foreign Investment
• Author: Jun (Joonho) Kim, Zunu Lee, Sung Woon Kang and Pilwoon Oh
• Published date: 14 March 2023

On January 25, 2023, the Financial Services Commission of Korea ("FSC") announced certain proposed measures to promote foreign investment in the Korean capital markets. Reflecting the discussions of an earlier meeting of the FSC's Financial Regulatory Innovation Committee with the Financial Supervisory Service ("FSS") and the Korea Financial Investment Association (being the Korean securities broker-dealers' SRO), the reform measures are expected to be adopted in 2023 and the following years through amendments to the subordinate rules and regulations under the Financial Investment Service and Capital Markets Act ("FSCMA") and other relevant laws. The proposed changes consist largely of (a) lifting the requirement for foreign investors to register with the FSS prior to trading listed securities and requiring only the submission to the broker-dealer of an internationally recognized legal entity identifier for a corporate investor ("LEI") or a passport number for a natural person, (b) eliminating certain restrictive reporting requirements to encourage the foreign investors' use of omnibus accounts, (c) allowing ex-post notification for broader types of permitted OTC trades of listed securities (as opposed to current requirement for ex-ante report), and (d) scheduled introduction in phases of mandatory English public disclosure regime for certain public companies listed on the Korea Exchange ("KRX").

1. First-time foreign investors would no longer be required to register first as foreign investors prior to trading listed Korean securities

Under the proposed amendments, first-time foreign investors would no longer be required to register with the FSS and obtain an investor register certificate ("IRC") before trading listed Korean securities.

Instead, first-time foreign investors will be able to trade listed Korean securities after simply providing to their Korean securities broker their LEI (in case of corporate entities) or their passport numbers (in case of natural persons) as part of the KYC process of the broker-dealer. An LEI is a unique alphanumeric code comprised of 20 characters and is based on the ISO 17442 standard. Any foreign investors who are already registered as foreign investors and have already obtained their IRCs, however, will be permitted to continue to use their IRCs for trading purposes.

Under the amended rules, which are expected to go into effect in the second quarter of 2023, the FSC will separately request trading information of...