Finance ministry eases foreign exchange rules in first step of won internationalization

The finance ministry said Tuesday it has proposed easing foreign exchange regulations that require banks and companies to report foreign currency and won borrowing in advance, the first concrete step in a plan to open the won to offshore trading.

The amendment to the Foreign Exchange Transaction Regulations was put forward for administrative notice, fleshing out the won internationalization road map announced on July 19.

Foreign exchange banks would report long-term foreign currency borrowing of more than 100 million dollars after the fact, within two business days, replacing the current prior notification for borrowing above 50 million dollars. Banks borrowing won funds from non-residents would be treated the same as foreign currency borrowing, with post-reporting required above 50 billion won ($37.4 million).

Issuers of won-denominated securities would report after the fact on offerings of up to 50 billion won, rather than notifying the ministry in advance.

Resident companies borrowing won from non-residents would report to the ministry above 50 billion won a year, up from the current 1 billion won ($748,615), while the threshold at which banks must notify the Bank of Korea of won loans to non-residents would rise to 50 billion won from 30 billion won ($22.5 million).

The cash pooling system, which lets corporate groups manage surplus and shortfall funds across units, currently handles only foreign currency up to a ceiling of 50 million dollars. The amendment adds the won and raises that cap to 100 million dollars.

Branches of foreign securities firms in Korea would be allowed to borrow foreign currency and won from non-residents on the same terms as incorporated entities. The ministry also said it would revise the investment-purpose account system so foreign investors can park won held for domestic securities investment in short-term financial products.

The ministry began gathering feedback on the first day of the notice period, holding a meeting chaired by its international finance bureau chief with the Bank of Korea and financial institutions. The institutions welcomed the direction of the deregulation and shared the purpose of the amendment, the ministry said.

The amendment is open for public comment from Oct. 13 to Oct. 26 and is scheduled to be finalized and take effect within the year.