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Korea regulator drops foreign investor restrictions

By Hui Ching-hoo   
January 31, 2023

South Korea’s financial regulator has ditched registration requirements for foreign investors and other restrictions in order to lure global investments into the local financial market.

Instead of having to register with the Financial Services Commission (FSC), foreign investors can buy Korean stocks and bonds through investment accounts at securities firms. They must provide verified identification to open the accounts.

The FSC also dropped requirements for reporting foreign investments made via omnibus accounts to the financial supervisor, and expanded the asset classes that are available for over-the-counter trading to foreign investors.

In addition, starting next year, listed Korean firms will have to provide English language versions of their announcements so as to resolve “the problem of information asymmetry”.

“These measures will enhance the investment environment for foreigners on a par with international standards, which will provide important grounds to boost foreign investment in Korean markets,” the FSC says in a statement on January 26.

According to the regulator, abolishing the requirement to report on foreign investments in local stocks through omnibus or consolidated accounts will allow global asset managers to cut transaction costs as they can process multiple orders and settlements from a single account in an integrated manner.

“In this regard, not only individual foreign investors but also Korean nationals residing abroad as well as foreign small- and medium-sized institutional investors can easily invest in Korean stock markets through an omnibus account a global securities firm operates,” the FSC says.

The compulsory English language announcements for listed firms will be implemented on a gradual basis from 2024, starting with companies that have over 10 trillion won (US$8.1 billion) of total assets.

“The problem of information asymmetry between domestic investors and foreign investors will be gradually resolved,” the FSC says.

It didn’t specify whether the other measures are effective immediately. Spokespersons for the regulator did not respond to questions from Asia Asset Management (AAM).

The changes are likely to “dramatically” improve foreign investors’ accessibility to the Korean equity market, according to Andrew Shin, director and head of investment services for Korea at UK insurance brokerage and advisory firm WTW.

“While these are all much desired changes, there are concerns around potential side effects such as liabilities of small- and mid-sized brokerage firms with increased workload of KYC [know your customers],” Shin tells AAM.