Financial Companies Accelerate Overseas Expansion and Investment, Reporting Burden Reduced

Financial Services Commission Announces Proposed Changes to the 'Regulations on Overseas Expansion of Financial Companies'

Measures to resolve delays in procedures for financial companies' overseas expansion and overseas investment, and to reduce the reporting burden on financial companies regarding overseas fund investments, thereby revitalizing financial companies' overseas expansion and overseas investment, will be established. The Financial Services Commission announced on the 25th that it will proceed with a notice of regulatory changes for the full revision of the "Regulations on Overseas Expansion of Financial Companies, etc."

The overseas expansion regulations are subordinate regulations under the Foreign Exchange Transactions Act, stipulating the obligations and procedures that domestic financial companies must comply with when making overseas direct investments, such as acquiring 10% or more of the shares of foreign corporations or establishing branches overseas.

The current overseas expansion regulations have been pointed out as causing difficulties for financial companies' overseas expansion and overseas investment. This is because they are regulated mainly through prior notification for managing foreign currency inflows and outflows according to the parent law, and there are overlapping reporting obligations under individual financial sector laws for the same overseas direct investment.

Accordingly, the Financial Services Commission created the revision draft by faithfully listening to industry opinions through relay seminars chaired by the Financial Globalization Response Team and sector-specific meetings.

The current overseas expansion regulations require financial companies to submit prior notifications to the Financial Services Commission or the Financial Supervisory Service when investing more than 20 million USD annually in offshore financial companies or establishing branches or offices overseas. Due to the time required for prior notification and approval, financial companies faced difficulties in proceeding with overseas investment procedures promptly and timely.

In this revision draft, the prior notification obligation for financial companies' investments in offshore financial companies and establishment of overseas branches has been completely changed to post-reporting (within one month after investment or establishment). This allows financial companies' overseas expansion and overseas investment procedures to proceed swiftly without delay.

Under the current regulatory framework by financial sector laws such as the Banking Act, Capital Markets Act, and Insurance Business Act, reporting and notification requirements related to overseas investment and overseas expansion are also stipulated. As a result, financial companies bore overlapping reporting and notification obligations under both the overseas expansion regulations and individual financial sector laws for the same overseas direct investment.

This revision draft newly establishes a provision that deems reporting and notification under the overseas expansion regulations as fulfilled when reporting and notification are made under the individual financial sector laws for the same overseas direct investment. This alleviates the overlapping reporting and notification burden on financial companies.

Financial companies generally invest in funds (offshore financial companies) managed by overseas asset managers using a capital call method.

However, the overseas expansion regulations do not separately consider investments in offshore financial companies via the capital call method, similarly to the foreign exchange transaction regulations applied to individuals and general corporations. Financial companies have raised difficulties in having to report and notify each time a capital call is made.

In this revision draft, for investments in offshore financial companies by financial companies using the capital call method, the total amount of capital commitments and the duration of the offshore financial company's existence must be reported at the initial report. For investments made according to capital calls within this period, only the remittance details must be submitted without a separate reporting procedure, establishing a special provision.

When this special provision is applied together with the change to post-reporting for offshore financial company investments, it is expected that the reporting burden on financial companies for overseas fund investments will be significantly reduced.

The overseas expansion regulations, based on the parent law Foreign Exchange Transactions Act, distinguish between branches that hold operating funds and can conduct business activities and offices for non-business activities such as research and liaison.

However, in some countries, offices are allowed to conduct business activities, operating under legal systems different from those in Korea. It has been pointed out that under the overseas expansion regulations, offices are not allowed to conduct business activities, thus failing to utilize the advantages of local systems permitted in those countries.

This revision draft allows offices to conduct business activities within the scope permitted by local overseas laws. This enables domestic financial companies to enjoy the advantages of local systems on an equal footing with overseas financial companies.

The full revision draft of the overseas expansion regulations will be open for additional comments through a notice of changes from the 27th until the 10th of next month, after which it will be implemented following the resolution of the Financial Services Commission.

This content was produced with the assistance of AI translation services.