Financial authorities announced guidelines to boost the use of integrated stock accounts for foreigners. The authorities also plan to complete by the end of the year an amendment to the financial investment business regulations that removes restrictions on who can open foreign integrated accounts. After the regulatory change, overseas small and mid-sized securities firms and asset managers will be able to designate integrated accounts without separate special-case approvals.
On the 27th, the Financial Services Commission (FSC) announced the guidelines for the use of foreign integrated accounts, saying it set rules for practical matters that foreign investors frequently asked about, including account opening, allocation of shareholder rights, and reporting procedures.
A foreign integrated account is a system in which, when an overseas financial investment business opens a single account, nonresident foreign investors can trade domestic stocks through that account. It simplifies order and settlement procedures and improves foreign investors' access to the domestic stock market.
Previously, nonresident foreign investors had to open an account directly with a Korean securities firm to invest in domestic stocks. Foreigners also had to complete prior investment registration with the Financial Supervisory Service and obtain an investment registration number, which caused inconvenience.
In response, in Apr. this year the financial authorities pursued an innovative financial service that grants a regulatory exception so that overseas small and mid-sized securities firms, which were restricted from opening integrated accounts under current rules, can open them. After that, in Aug., Hana Securities opened Korea's first foreign integrated account. Samsung Securities and Yuanta Securities Korea were additionally designated as innovative financial services in Sep. and are preparing to open integrated accounts.
The account opening process proceeds in the following order: ▲ the overseas financial investment business consults and signs a contract with a domestic securities firm to open an integrated account ▲ the overseas financial investment business opens a custody account with a domestic standing agent ▲ the overseas financial investment business opens the integrated account.
The contract must specify procedures related to the obligation to submit transaction histories by ultimate investor upon request from Korean supervisory authorities, the obligation to verify the beneficial owners of the overseas financial investment business, and the obligation to establish and operate internal controls to prevent unfair trading.
Exercising rights through an integrated account is in principle the same as in a general account. However, if the details of voting rights exercised differ by ultimate investor, the holder of the integrated account may collect each investor's intent and exercise split voting.
The Korea Securities Depository allocates dividend rights in a lump sum to the holder of the integrated account, after which the holder allocates and pays them pro rata according to the holdings of each ultimate investor.
An overseas financial investment business must record and maintain the stock transaction history of ultimate investors for 10 years, either directly or through a standing agent. It must also submit the records to the domestic securities firm where the account is opened by the 10th of the following month, based on the end of each month, using the form prepared by the Financial Supervisory Service (FSS).
Domestic securities firms must pre-check the sanction history of foreign integrated account holders, certificates of authorization from the supervisory authority in the home country, and internal control measures to prevent unfair trading and money laundering. They also need to periodically check whether customer due diligence obligations are being fulfilled and whether internal control systems to prevent unfair trading are functioning properly.
The guidelines will also be translated into English and distributed. An official at the Financial Services Commission (FSC) said, "Through these guidelines, uncertainties in the account opening and operation process for overseas financial investment businesses will be greatly resolved, and the use of integrated accounts will be further activated."