Here is the rewritten article in markdown format:
New Regulatory Requirements Enable Onshore Interbank Foreign Exchange Market Participation
Seoul, KOREA REPUBLIC OF - October 18, 2023
The Guidelines on Foreign Exchange Business of Foreign Financial Institutions have taken effect, opening up the onshore interbank foreign exchange market to qualified foreign financial institutions.
Eligibility Requirements and Registration Process
Foreign banks and securities companies that meet internationally accepted standards for financial soundness, such as Basel III, may apply for registration as Registered Financial Institutions (RFIs). To do so, they must submit a completed application form along with other required documents. Applicants are also required to enter into credit extension agreements with at least ten government-approved Korean financial institutions, including four FX leading banks designated by the Ministry of Economy and Finance.
Eligibility Criteria:
- Meet internationally accepted standards for financial soundness (Basel III)
- Submit a completed application form
- Enter into credit extension agreements with:
- At least 10 government-approved Korean financial institutions
- Four FX leading banks designated by the Ministry of Economy and Finance
Permitted Scope of Businesses
Once registered, RFIs will be allowed to conduct KRW/USD spot/forward and swap trades with other onshore FX market participants through a Korean licensed FX broker. They will also be able to transact in KRW/USD spot/forward and swap trades directly with non-resident clients without going through a Korean licensed FX broker, provided the trades are settled through onshore KRW/USD accounts.
Allowed Trades:
- KRW/USD spot trades
- KRW/USD forward trades
- KRW/USD swap trades
Regulatory Obligations
RFIs will be required to report certain trade details to the Bank of Korea and confirm whether client trades are subject to reporting requirements under the foreign exchange laws of Korea. In some cases, these tasks can be outsourced to a designated Korean financial institution, known as an “Agent” under the Guidelines.
Regulatory Obligations:
- Report trade details to the Bank of Korea
- Confirm whether client trades are subject to reporting requirements
Impact on Foreign Investors
The new regime is expected to promote competition in the Korean FX market by allowing foreign investors to enter into KRW/USD FX trades directly with offshore financial institutions registered as RFIs. This change may also lead to increased investment opportunities for foreign financial institutions and improved access to the Korean capital markets.
Expected Impact:
- Promote competition in the Korean FX market
- Increase investment opportunities for foreign financial institutions
- Improve access to the Korean capital markets