Korea makes it easier for foreigners to invest in local stock market

The Financial Services Commission (FSC) located in central Seoul / Yonhap

Gov't to require more listed firms to publish disclosure information in English, abolish foreign investor registration system

By Anna J. Park

Listed corporations with a market cap size of over 10 trillion won ($8.8 billion) will be required to start publishing their important disclosure information in English next year. Foreign investors can also use their globally standardized Legal Entity Identifier (LEI) or passport numbers to trade Korean stocks, instead of submitting identity registration, as has been required for the past 30 years.

These are part of new measures jointly announced this week by the financial authorities, including the Financial Services Commission (FSC), the Financial Supervisory Service (FSS) and the Korea Exchange (KRX), aiming to make Korean stock markets more accessible to foreign investors.

The measures came as a result of a series of deregulatory meetings held by the financial authorities throughout the last year, involving private sector experts and scholars, as well as relevant government ministries.

While the country's capital market has gone through major changes during the past three decades, some of the local regulations applied to foreign investors were heavily criticized for not only being archaic and burdensome, but also regarded as discriminatory against foreign investors.

Disclosure information to be published in English next year

The lack of availability of Korean corporations' disclosure information in English has been one of the biggest complaints of foreign investors. Even though corporations' public disclosure information is crucial for global investors, companies here still lag behind global standards.

Hong Kong and Singapore have designated English as their official language when it comes to disclosure information, aiming to strengthen their capital markets' competitiveness. Taiwan also partially requires listed corporations to issue disclosures in English.

By contrast, in Korea as of 2022, 140 companies listed on the main benchmark KOSPI released a total of 2,453 disclosures in English, which is only 13.8 percent of the number of Korean-language disclosures. Given that the percentage was 9.2 percent in 2021, there has been some improvement, but it still has a long way to go.

Currently, Korean corporations' public disclosures in English still rely heavily either on each company's voluntary submission or automatic translations of the Korean disclosures, thereby leading to complaints by foreign investors over both quality and quantity.

With the financial authorities' policy shift, disclosure information will now gradually be in English starting from 2024. During the first phase from 2024 to 2025, publishing disclosures in English will be required of corporations with a market cap size of over 10 trillion won as well as companies with foreign investors taking over 30 percent of their shares, if their market caps are over 2 trillion won.

From 2026 and onward, listed companies with market cap sizes of over 2 trillion won will all bear the same responsibility ― to publish important disclosure information in English. At the same time, the government plans to improve online platforms for electronic disclosures in English.

"Such gradual increases of obligatory public disclosure information in English will widen global investors' access to local companies. It is expected to gradually solve the current asymmetric information situation between local investors and foreign investors," an FSC official said.

The FSC acknowledges that there could be a risk of incorrect translations, which might bring in legal suits from global investors. Yet, the top regulator believes making it compulsory to publish disclosures in English will increase convenience when foreigners invest in the country, which will lead to an increase in their investments in the Korean stock markets.

Abolishment of foreign investor identity registration system

One of the other major pillars of the FSC's announced measures is its plan to scrap its 30-year-old requirement for foreign investors to register their identities. Instead, institutional foreign investors can use their internally used LEI, and retail foreign investors can use their passport number. The LEI is a standardized form of identification adopted by G-20 countries in 2011.

Additionally, institutional foreign investors will no longer have the obligation to report the details of their investment within the "day of trade plus two days" (T+2) when their transaction payments are settled. Rather, they will be asked to submit the details regarding their investment only when doing so is deemed necessary by the authorities for cases like market monitoring and taxation.

Foreign investors will also be allowed to trade a wider scope of stocks at local over-the-counter markets.

Foreign investors and scholars welcome the government's progressive moves.

"These measures are such forward-looking policies that will resolve many of the age-old problems and inconveniences experienced by foreign investors in their investments in Korea," said Ha Yung-ku, chairman and representative director at Blackstone Advisors Korea.

Shin In-seok, a business professor at Chung-Ang University, also assessed the policies positively.

"The mandatory identity registration system has long been one of the representative and symbolic policies that led global investors to view Korea as a closed market that discriminates against them. Thus, it means a lot that the authorities decided to scrap the system," he said.