FTSE Russell issued FTSE Fixed Income Country Classification Announcement March 2023 on March 30, 2023 (Korean local time) and stated that Korea remains on the FTSE Fixed Income Country Classification Watch List for the potential reclassification of its Market Accessibility Level from 1 to 2, and consideration for Inclusion in the FTSE World Government Bond Index (WGBI). The FTSE Fixed Income Country Classification Announcement is issued semi-annually in March and September and Korea was first placed on the Watch List in September 2022.
FTSE Russell stated that Korean market authorities have undertaken, or are in the process of undertaking, several initiatives intended to improve the structure and accessibility of the Korean capital markets for investors. These include the exemption of the withholding tax levied on investment in Korean Treasury Bond (KTBs) for international investors, the implementation of International Central Securities Depositories (ICSD)’s omnibus accounts, the abolishment of the Investment Registration Certificate (IRC) scheme, and foreign exchange market reforms. FTSE Russell also mentioned that certain reforms were introduced recently, while others require relevant local laws and regulation to be amended and it will seek evidence from international market participants of the efficacy of the enhancements as the reforms are implemented.
Korea’s joining the FTSE WGBI is projected to induce an increase in foreign investment into the Korean government bond market, balance supply and demand in the market, and reduce interest costs on investment, contributing to improving stability in the market and tackling “Korea discount” that refers to a tendency of undervaluing Korean stocks. To this end, the government will strive to achieve Korea’s inclusion in the FTSE WGBI with its continuous institutional reforms and close communication with international investors as follows.
1) The government will swiftly implement tasks for its institutional reforms as planned. Under the “Measures to Improve Foreign Investors’ Access to Korean Capital Markets” announced in January, the Investment Registration Certificate (IRC) is expected to be abolished within this year following the revision of the Enforcement Decree of the Financial Investment Services and Capital Markets Act and Regulations on Financial Investment Business in the first half of this year. Moreover, under the “Improvement Measures for Foreign Exchange Market Structure” announced in February, the government will push forward with the amendment of Foreign Exchange Transactions Act with an aim to ensure foreign institutions (FIs)’ participation in the onshore interbank foreign exchange (FX) market and the extension of onshore FX trading hours.
2) The government will make continuous efforts to reflect international investors’ opinions and devise measures to bring more convenience to them, even for completed tasks such as the exemption of the withholdings tax levied on investment in Korean Treasury Bonds (KTBs). In particular, official documents in English for application and reporting will be provided by amending the Enforcement Rule of Income Tax Act and the Enforcement rule of Corporate Tax Act in the first half of the year. The government will closely monitor whether a measure to simplify process for third party onshore FX is widely used as intended.
3) The government will endeavor to expedite the opening of International Central Securities Depositories (ICSD)’s omnibus accounts through various communication channels such as high-level meetings, not to mention periodic working-level consultations, with related organizations including Euroclear and Clearstream.
4) The government will go all out to have communication with international investors as well as to achieve institutional reforms. It will do its best to make international investors well-informed about the outcomes of Korea’s institutional reforms and its future plans by holding related events such as IR overseas. It will also closely communicate with FTSE Russell by frequently holding working-level and high-level meetings virtually and in person.
 Non-residents, including foreign FIs, have been authorized to conduct deliverable Korean Won FX transactions facing local banks, in which non-residents do not have their own KRW settlement account. Starting from March 29, this simplified process was allowed through an authoritative interpretation of the Regulations on Foreign Exchange Transactions.
Source: Ministry of Economy and Finance, Republic of Korea