Cross-Border Business, Foreign Exchange Transactions, and Overseas Derivatives Hedging
This domain tests how cross-border securities activity, FX rules, and overseas derivatives hedging interact with Korean branch permissions.
Cross-border licensing
Soliciting Korean clients from abroad can require a Korean licence unless a narrow exemption applies. The branch should document client classification, the location of solicitation, and the legal basis for any cross-border activity. “Reverse solicitation” is not a broad exemption. Outbound investment and overseas derivatives also require attention to foreign exchange reporting and soundness rules.
Hedging and derivatives
Maintain a board-approved hedging policy that distinguishes hedging from speculation. Set counterparty, concentration, and tenor limits; document the hedged exposure; and ensure affiliate trades are on arm’s-length terms with conflict approval. FX transactions may require dealer permission or reporting under the Foreign Exchange Transactions Act.
Worked example
A Seoul branch hedges a USD bond portfolio with an offshore affiliate through a total return swap. The branch must confirm the hedge is economically linked to the portfolio, check FX reporting and dealer permissions, obtain affiliate-transaction approval, and apply counterparty limits. A speculative position would breach the hedging policy and may breach FX rules.
Traps
Assuming offshore execution avoids Korean rules; ignoring FX reporting; undocumented hedges; affiliate dealing without conflict approval; calling speculation a hedge.