The South Korean government has given its nod to a revision bill of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA), effectively eliminating the need for foreign investors to register. This significant decision was made during a cabinet meeting held on June 5, 2023. The longstanding foreign investor registration system, which has been in operation for approximately three decades since its inception in 1992, will cease to exist starting from December 14 this year (2023).
Previously, under the foreign investor registration system, foreign investors were required to register with the Financial Supervisory Service (FSS) before making investments in locally listed securities, including stocks and bonds. This meant that foreign investors could only open investment accounts with South Korean securities firms after obtaining registration with the authority and receiving a registration certificate, known as a foreign investor ID. Due to the time-consuming and paperwork-intensive nature of this process, it had been widely criticized as a significant obstacle for foreign investors looking to participate in the Korean stock markets. Additionally, such registration requirements for foreign investors were not implemented in major advanced economies like the United States and Japan. Consequently, there had been persistent calls from global investors for the need to reform this rule to align Korean regulations with international standards.
Although introduced in 1992 to manage foreign investors' maximum investment limits, the foreign investor registration system remained largely unchanged over the past three decades, even though the restriction on foreigners' investment limits was primarily removed in 1998. This left only 33 items under authorities' scrutiny for total foreign holdings and two items for individual foreign holdings among the roughly 2,500 listed companies.
Once the revised Enforcement Decree of the FSCMA takes effect, foreign investors will no longer be obligated to complete the prior registration process with the FSS to open investment accounts at South Korean securities firms. Foreign corporate entities can utilize their legal entity identifiers (LEIs), while foreign individuals can use their passport numbers for account opening in Korea. Those who already possess a foreign investor ID can continue using their investor registration number to minimize potential disruptions caused by this system change. Importantly, even after the elimination of the foreign investor registration requirement, authorities will retain the ability to manage the total and individual foreign holding limits for items considered essential.
With the removal of the foreign investor registration system, authorities anticipate that foreign investors will have enhanced access to Korean stock markets, thereby establishing a foundation for increased foreign investment in domestic markets.
The Financial Services Commission (FSC), in collaboration with the FSS and the Korea Financial Investment Association, will develop relevant guidelines and ensure a smooth transition regarding the elimination of the foreign investor registration requirement. Additionally, other measures aimed at improving foreign investors' access to Korean capital markets, as previously announced in January, and requiring revisions to financial investment business rules, such as expanding the scope of over-the-counter (OTC) transactions eligible for ex-post reporting and simplifying foreign investors' use of omnibus accounts, will soon be finalized through deliberation by the FSC and will go into effect concurrently with the abolition of the foreign investor registration requirement.
