Administration Notice for the Guidelines on the Foreign Exchange Affairs of RFIs
The Ministry of the Economy and Finance announces the administrative notice for the “Guidelines on the Foreign Exchange Affairs of Registered Foreign Institutions (RFI)” on September 26, 2023, in accordance with Article 46 of the Administrative Procedures Act. Under the “Improvement Measures for Foreign Exchange Market Structure” announced on February 7, the government has completed the amendment to the Enforcement Decree of the Foreign Exchange Transactions Act on September 25, aiming to institutionalize the participation of RFIs in Korea’s foreign exchange (FX) market.
The newly established guidelines will take precedence over the Regulations on Foreign Exchange Transactions, and the key content is as follows:
Above all, it stipulates the registration requirements for RFIs wishing to participate in the domestic FX market, as well as procedures for modification or discontinuance of the registration. The government will verify the eligibility of foreign financial institutions (FI) when they apply for registration, and periodically (every 3 years) review their appropriateness to ensure stable transactions with Korean FIs and that they do not act as risky factors in Korea’s FX market.
Under the guidelines, RFIs will be allowed to buy and sell deliverable spots and forwards (FX swaps and outright forwards) in the onshore interbank FX market. However, interbank FX transactions must be conducted through government-approved local broker(s) (including foreign brokers’ branches in Korea). RFIs will also be able to trade deliverable FX spots and forwards (FX swaps and outright forwards) with their customers, and the scope of customer is limited to non-residents. In addition, payments must be made through the foreign currency accounts for business use (which are opened with domestic and foreign FIs) or won accounts (which must be opened with domestic banks or foreign bank branches in Korea).
RFIs, as FX market participants, must comply with the legal obligation to confirm that their customers have made legitimate report on FX transactions and to report key transaction-related information to authorities. However, taking into consideration the difficulties in complying with certain obligations due to being located overseas, it is permissible to designate FIs such as FX banks in the same group (foreign bank branches) or leading banks as agencies to entrust the fulfillment of obligations. The government will supervise business of these institutions to maintain their soundness and closely monitor the compliance of obligations through the Bank of Korea.
These guidelines will come into effect on October 18 after an administrative notice (September 27 to October 12).
Please refer to the attached files.