Financial Institutions in South Korea: Adhering to Strict Due Diligence Procedures

Overview

Financial institutions operating in South Korea must adhere to strict due diligence procedures when conducting financial transactions. The Act on Real Name Financial Transactions and Guarantee of Secrecy (Real Name Financial Transactions Act) and the Financial Transaction Reports Act (FTRA) outline these requirements.

When Does Due Diligence Apply?

• Opening New Accounts: Financial institutions must conduct due diligence when opening new accounts, as defined by Article 10-2(2) of the Enforcement Decree of the FTRA.
• Financial Transactions: Financial institutions must also conduct due diligence for certain types of financial transactions, including:
  • Receiving and paying cash without using an account
  • Obtaining or cashing a cashier’s check
  • Purchasing or selling traveller’s checks
  • Safeguard deposit
  • Buying and selling prepaid cards
  • Wire transfers

Required Due Diligence Measures

To comply with due diligence requirements, financial institutions must:

• Verify Customer Identification: Identify and verify the identification of customers under Article 5-2(1)(1) of the FTRA and Article 10-4 of the Enforcement Decree of the FTRA.
• Check and Verify Customer Information: Check and verify customer information for each category of customers, including:
  • Name
  • Date of birth
  • Address
  • Passport number
  • Driver’s license number
  • Other identifying documents

Failure to Comply

Failure to comply with these due diligence requirements can result in severe penalties, including fines and even revocation of licenses.

Conclusion

Financial institutions operating in South Korea must be aware of the strict due diligence procedures outlined by the Real Name Financial Transactions Act and the FTRA. By understanding when due diligence applies and what measures are required, financial institutions can ensure compliance with these regulations and maintain a strong reputation in the industry.