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| Kim So-young, vice chair of the Financial Services Commission (FSC), speaks during a seminar on removing the so-called Korea discount held at the Korea Exchange (KRX) in Yeouido, Seoul, Monday. Yonhap |
By Anna J. Park
Korea's financial authorities plan to remove a decades-long obligation imposed on foreign investors to register their identities prior to investing in Korean stocks.
The move is part of the Korean government's efforts to ease financial regulations on global investors, as the registration requirement for foreign investors has been pinpointed as one of the key stumbling blocks contributing to the so-called Korea discount, referring to the undervaluation of Korean stocks.
"Requiring an identity registration on the part of foreign investors prior to their investments in local stocks is rarely found among developed countries. Some global investors even doubt whether their trade records are being supervised in real time through the ID process. The Korean government will abolish the identification registration requirement for foreign investors," Kim So-young, vice chair of the Financial Services Commission (FSC), said during a speech at a seminar in Seoul, Monday to discuss measures to resolve the Korea discount.
The vice chair of the FSC said the government will rather use legal entity identifier (LEI) and passport numbers, which are widely used among developed financial markets.
This is the first time that the country's top financial regulator made it official that it will abolish the identity registration process for global investors, despite years-long complaints from foreign investors about the requirement.
Since the system was introduced in Korea back in 1992, it has been a source of complaints from foreign investors. Global investment banks, such as Goldman Sachs and Morgan Stanley, have consistently demanded the authorities remove the requirement, as it could not only reveal their investment strategies but also require excessive documentation.
As market watchers have been pointing out that the abolishment of the system would be a prerequisite for the Korean stock market's future inclusion into MSCI's Developed Markets Indexes, which the Korean government has been seeking for a long time, the removal of the registration obligation is expected to positively impact the country's inclusion in the near future.
"The abolishment of the identity registration system is expected to not only resolve years-long discomfort borne by foreign investors, but also help the Korean markets follow global standards when it comes to market monitoring," Byun Joong-seok, executive director at UBS, said.
In addition to removing the identity registration requirement, the top financial regulator has also decided to renovate the country's dividend-paying process of listed companies. The generally low propensity to offer dividends has been another key part of what causes the Korea discount.
The current system in Korea leaves it up to listed companies to determine who will receive dividends at the end of the year, and decide the following spring how much in dividends will be distributed. The FSC said it will change the system to resemble the U.S., where shareholders first know how much will be paid as dividends, before companies set the date of locking the list of shareholders who will receive the payouts.
The financial regulator has also decided to gradually oblige listed companies to publish their disclosures in English.
The series of measures were drawn up by the FSC and related organizations, including the Financial Supervisory Service (FSS), the Korea Exchange (KRX), the Korea Financial Investment Association (KOFIA) and the Korea Securities Depository (KSD) since June this year. The FSC said it will go ahead with the proposed plans starting next month.
