Launch of Small-sum Foreign Currency Transfer Business and Introduction of Small-sum Remittance Business
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Amendments have been made to the Foreign Exchange Transactions Act (“FETA”) as of January 17, 2017, which have become effective on July 18, 2017. A significant part of the amendments is the introduction of the “Small-sum Remittance Business”, which would allow non-financial companies to independently perform cross-border remittance of small amounts. Also, the “Small-sum Foreign Currency Transfer Business”, which would allow the cross-border transfer of small amounts through the “business agreement with a foreign currency exchange bank”, has already been made available by amendment to the Foreign Exchange Transactions Regulations (“FETR”) on March 22, 2016.
In this article, we provide a summary of the major points of the “Small-sum Foreign Currency Transfer Business” under the current FETR and the newly introduced “Small-sum Remittance Business” as well as the significance of the introduction of such businesses and the future prospect thereof.
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| 1. Background of the Introduction of the Small-sum Foreign Currency Transfer Business and Small-sum Remittance Business
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Historically, cross-border remittance of money used to be handled exclusively by the foreign exchange banks. However, it was difficult for such exclusive handling/regulation of the international money transfer by the foreign exchange banks to accommodate new demands from the market, such as the introduction of the Fintech in foreign exchange business. Also, such arrangement could not cope with new technologies that were being applied to foreign exchange transactions in other countries where foreign exchange transactions are more leniently regulated, such as the USA and UK?for instance, overseas money transfer service providers such as Xoom, PeerTransfer, TransferWise and Azimo are providing online overseas money transfer service via mobile devices.
Against this backdrop, the Ministry of Strategy and Finance (“MSF”) introduced the “Small-sum Foreign Currency Transfer Business” by making an amendment to the FETR on March 22, 2016 such that such cross-border transfer of small amounts can be performed through “delegation of work from the foreign exchange bank”. Further, the National Assembly made amendments to the FETA and introduced the “Small-sum Remittance Business” which would allow non-financial institutions to perform international remittance of small amounts even without delegation of work from foreign exchange banks provided that certain requirements are met and registration with the Minister of MSF is made.
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| 2. Summary of the current Small-sum Foreign Currency Transfer Business
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[Requirements] A person intending to engage in the Small-sum Foreign Currency Transfer Business shall be required to enter into an agreement with a foreign exchange bank and obtain delegation of work regarding payment/receipt of money from the latter. Also, such person shall satisfy the capital requirement (not less than KRW300 million) and personnel/facility requirements (data processing facility and professional manpower, etc.) and qualification for directors/officers.
[Scope of Work] The amount of payment/receipt to be performed under the Small-sum Foreign Currency Transfer Business should be within USD 3,000 per each transaction and within the total amount of USD 20,000 per person on an annual basis. As the Small-sum Foreign Currency Transfer Business is performed via delegation of payment/receipt work from the foreign exchange bank, the works that can be performed by the delegatee consist of: (i) accepting the application for payment/receipt, (ii) providing support for confirmation of real name transaction, (iii) confirming the reasons for payment/receipt, (iv) management of the annual limit of transaction amount per person, and (v) other works in connection with the above.
[Protection of Consumer] A Small-sum Foreign Currency Transfer Business operator shall be required to deposit performance guarantee or guarantee insurance policy to guarantee in an amount not less than twice the amount of the purported transaction, and the Superintendent of the Financial Supervisory Service (FSS) shall have the authority to examine the handling of the delegated works by the foreign exchange bank and Small-sum Foreign Currency Transfer Business operator. |
| 3. Summary of the newly introduced Small-sum Remittance Business
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| (1) Amended provision in the FETA (Article 8(3))
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| Under the current “Small-sum Foreign Currency Transfer Business” arrangement, a person intending to engage in cross-border remittance of money will be allowed to perform such service only via delegation of work from a foreign exchange bank. On the contrary, under the amended FETA which introduced the “Small-sum Remittance Business”, a non-financial company will be allowed to provide the cross-border remittance service without such restriction. In other words, a non-financial company will be allowed to engage in the Small-sum Remittance Business without delegation of work from a foreign exchange bank by registering with the Minister of the MSF. |
| (2) Major provisions of the Enforcement Ordinance of the FETA (“FEO”) and FETR that became effective as of July 18, 2017 (Articles 15-2 to 15-4 and Articles 17-2 to 17-4 of FEO, and Articles 3-3 to 3-10 of FETR)
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The MSF has amended the relevant provisions in the FEO and FETR to stipulate specific registration requirements, work scope, and other requirements to ensure safety of transfer transactions and protection of consumers relating to the Small-sum Remittance Business under the amended FETA. Such amended provisions have become effective as of July 18, 2017, the date on which the amended FETA has become effective.
[Registration Requirements] A Small-sum Remittance Business operator is required to be a company as defined under the Commercial Act, with a capital in the amount of not less than KRW 2 billion. However, in the case of a small-size specialist (i.e., a business operator specializing in the Small-sum Remittance Business whose aggregate transaction amount per quarter is not more than KRW 15 billion), a relaxed capital requirement of KRW 1 billion will be applied, provided that if the aggregate transaction amount per quarter exceeds KRW 15 billion for 2 consecutive quarters or more, or the business operator engages in businesses other than the Small-sum Remittance Business, then such small-size specialist will also be required to comply with the KRW 2 billion capital requirement. In addition, the ratio of its total amount of debt against its equity capital shall be within 200/100 or below, and the business operator shall be required to comply with the requirements for data processing facility/personnel, foreign exchange computer network linked to the network of the Bank of Korea, foreign exchange specialists and directors/officers. However, a difference between the Small-sum Foreign Currency Transfer Business and the Small-sum Remittance Business in terms of qualification for the business operator is that, while the former can be performed by a non-bank financial company, the latter can be performed by a only non-financial company.
[Scope of Work] The amount of payment/receipt to be performed under the Small-sum Remittance Business should be within USD 3,000 per each transaction, and the aggregate amount that a certain user of the remittance service may remit/receive via the same provider per year is not more than USD 20,000. A Small-sum Remittance Business operator shall be required to designate a bank account to be used for the remittance service, and only use this account for payment/receipt of the user’s money?also, for accounting purposes, such bank account should be separately handled from the service provider’s other assets.
[Protection of Safety of Transaction and Consumer] A Small-sum Remittance Business operator shall comply with certain requirements under the Electronic Financial Supervision Regulations to procure safety and credibility of the informational and technological aspect of the service, and provide material terms/information regarding exchange currency rate and fees in writing in the terms and conditions of the transaction, as well as procedures for dispute resolution. In addition, the business operator shall be required to provide a deposit with the FSS or enter into a guarantee insurance policy in an amount equivalent to 3 times (at least KRW 300 million) the amount of the daily average amount that the user has requested payment for (i.e., the total amount requested by the user in the immediate previous month/total days of the immediate previous month). Business activities of the business operator shall be subject to supervision/examination of the FSS. Also, the business operator shall be required to notify the details of the transactions to the Bank of Korea through the foreign exchange computer network.
[Real-name Financial Transaction System and Anti-Money Laundering Obligations] A Small-sum Remittance Business operator shall be subject to the real-name financial transaction system and anti-money laundering obligations under the “Act on Real Name Financial Transactions and Guarantee of Secrecy” and “Act on Report on, and the Use of Specific Financial Transaction Information”.
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| 4. Diversification and Prospect of the Foreign Exchange Transactions |
| It is expected that the Small-sum Foreign Currency Transfer Business and Small-sum Remittance Business will be moving further from the restricted overseas remittance market controlled by the foreign exchange bank to more diversified, less restricted market, where not only non-bank financial companies but also non-financial companies will be participating. Especially, as more creative products based on new information technology are being introduced into the small-sum overseas remittance service, which will make it easier for the users to use the service and make it possible to develop various business models, there will be many changes to occur in the Fintech industry. It is also expected that companies that have entered the market in advance of other companies will gain a significantly competitive edge, as, in the “platform business” like overseas remittance business, the effect of preoccupancy of the market is significant. However, it is necessary to resolve the discrepancy caused by the fact that while non-financial companies are allowed to engage in the Small-sum Remittance Business without obtaining delegation of work from the foreign exchange bank, the non-bank financial companies are required to obtain such delegation of work to perform the Small-sum Foreign Currency Transfer Business.
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| 5. Lee & Ko’s Fintech Practice Group |
Lee & Ko has formed a Fintech Practice Group consisting of highly experienced legal experts in the financial IT area and finance law area to provide comprehensive legal service on all aspects of Fintech-related issues, as well as new businesses based on Fintech and legislation relating to the Fintech. Our Fintech Practice Group is excellently positioned to provide tailored solutions based on the changing financial IT laws and regulations in Korea.
Please do not hesitate to let us know if you have any questions regarding the Small-sum Foreign Currency Transfer Business and Small-sum Remittance Business.
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