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This report intends to explore how Korea’s securities firms currently conduct foreign exchange business and present improvements and challenges for reinforcing their FX business capability. Korean securities firms’ incompetence in the FX business may stem from a lack of their effort, but it is also attributable to limitations in the Foreign Exchange Transactions Act. Securities firms are restricted from securing foreign currency funds and are not permitted to remit or receive foreign currency. Foreign exchange trading (currency exchange) by securities firms is only allowed for investment purposes and opening an FX account is also limited.

This situation requires the Korean government to depart from the FX bank-centric concept deeply rooted in the Foreign Exchange Transactions Act and to encourage non-banking financial institutions such as securities firms to improve their FX business capabilities. Notably, when securities firms carry out typical FX services specified by the Financial Investment Services and Capital Markets Act, their FX business practices, such as currency exchange, account settlement and foreign currency remittance, are interconnected with each other. Accordingly, it should be noted that partial deregulation hardly helps non-banking institutions to comprehensively handle business practices. This implies sweeping deregulation will play a critical role in strengthening the capability of FX and global finance business across the financial services industry by enhancing the external soundness of non-banking financial institutions. Relaxed regulations are also crucial in increasing convenience in financial investment transactions and improving efficiency in financial intermediary services by reducing trading costs.     

In this respect, Korean securities firms need to exert diversified and proactive efforts as follows. First, they should establish a comprehensive FX service system for cross-border investments including investment brokerage, foreign currency remittance and settlement, entrustment and custody of foreign currency securities, and FX hedging. Second, FX businesses of securities firms should evolve into a foreign currency transaction platform through an electronic business system to meet the growing demand for digital finance. Third, it is also necessary to overhaul the internal FX management system regarding monitoring and risk control.