UPCOMING CHANGES TO THE LAWS AND REGULATIONS GOVERNING FOREIGN EXCHANGE TRANSACTIONS IN SOUTH KOREA
( by Andrew Baek, June 29, 2023 )
The South Korean government, having embarked upon a structural reform of its foreign exchange transactions regulatory system, seeks to first abolish disproportionate impositions of harsh penalties against violation of procedural obligations under the system.
Beginning next year, the Foreign Exchange Transactions Act (FETA) is set to undergo an amendment process to remove its provisions that currently impose criminal penalties against violation of procedural obligation in foreign exchange transactions, e.g., ex-ante reporting requirements.
In the interim between now and the enactment of the amended FETA, the South Korean government intends to give leniency in the enforcement of the current FETA; its State Council has just passed a resolution on the bill for partial revision of the Enforcement Decree of the Foreign Exchange Transactions Act (“Enforcement Decree”).
Prior to the said partial revision of the Enforcement Decree, it was mandatory for the government to impose a criminal penalty against violation of reporting requirements in capital transactions where such violation amount exceeds 20,000 USD; whereas under the revised Enforcement Decree, the threshold amount has been raised to 50,000 USD, and the government may only issue a warning, rather than impose a criminal penalty, where the violation amount is 50,000 USD or less.
According to a press release from the Ministry of Economy and Finance, the revised Enforcement Decree will be promulgated and put into effect on and as of July 4, 2023, together with subordinate regulations (Regulations on Foreign Exchange Transactions) which are also being revised at this time.
When it comes to making a foreign exchange transaction, the most detailed and directly relatable regulatory provisions are usually found in the subordinate regulations, rather than the Act itself or its Enforcement Decree. Accordingly, the revisions to be made to the regulations would draw much attention.
Although the specifics have not been fully disclosed to the public, it appears that ex-ante reporting requirements under the regulations for more than 31 types of capital transactions will be abolished and converted to ex-post basis; capital transactions among which include foreign currency loans of up to 30 million USD made to a for-profit entity in South Korea from a non-resident. Foreign Direct Investment, on the other hand, would still require an ex-ante filing of reports; although its ex-post management requirements will be greatly reduced: ad hoc reporting requirements will be abolished and replaced by an annual regular reporting requirement using a significantly simplified format.
Hopefully, we will learn more about new regulatory changes to be unveiled in the coming months that will facilitate more rapid and convenient foreign exchange transactions.
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