"Foreign Investors Allowed Temporary Overdraft Accounts When Exchanging Currency"

As Part of Government's Foreign Exchange Market Structural Improvement Efforts

Dealers are working at the Hana Bank headquarters in Jung-gu, Seoul.

Foreign investors investing in domestic stocks and bonds will see significant improvements in the previously complex currency exchange procedures. It is expected that foreign investors' access to the domestic market and the Korean won will improve.

The Bank of Korea, the Ministry of Economy and Finance, the Financial Services Commission, and the Financial Supervisory Service announced on the 21st that they will allow temporary won overdrafts during currency exchange to activate foreign investors' investment in the domestic capital market.

Until now, foreign investors have mainly conducted foreign exchange transactions through their main banks to minimize the risk of settlement failures caused by time differences between countries, complicated interbank remittance procedures, and system errors. However, this limited opportunities to reduce currency exchange costs and acted as a factor discouraging foreign investment in the domestic market.

To resolve these inconveniences, the government plans to allow foreign investors to borrow settlement funds for securities transactions even if a temporary shortage of won occurs during currency exchange with financial institutions other than their main banks, as long as they prove to the domestic custodian bank that an actual foreign exchange transaction contract existed.

Kim Shin-young, head of the Foreign Exchange Market Team at the Bank of Korea's International Department, said, "Due to various restrictions, foreign investors have only been able to exchange currency through their main banks, but from now on, they will be able to use other banks with better conditions." He added, "Temporary won overdrafts can be seen as a kind of short-term negative balance account that acts as a safety device to resolve issues that may arise during this process."

The system will also be improved to allow foreign investors investing in the domestic capital market through global asset management firms to conveniently exchange currency without opening a cash account in their own name when using integrated stock accounts. Previously, even if the legal entity was the same, separate investment registration and securities and cash account openings were required for each fund, but this will be simplified.

Additionally, won transactions will become more convenient when foreign investors invest in government bonds and monetary stabilization bonds through international central securities depositories such as Euroclear or Clearstream.

Under current foreign exchange regulations, the use of won exchanged through international central securities depositories is strictly limited. This raised concerns that foreign investors investing through these depositories would have to perform double currency exchanges (won → foreign currency → won) or face restrictions on currency exchange through financial institutions other than the domestic banks designated by the depositories.

However, with this improvement, individual investors will be able to freely remit won funds deposited in won accounts separately opened with the international central securities depositories, enabling more efficient use of the Korean won.

A government official emphasized, "We plan to revise the foreign exchange transaction regulations in the first quarter of this year to quickly establish the new system."