South Korea's New Offshore Won Settlement Framework

South Korea's Finance Ministry announced Wednesday that foreign financial institutions will be allowed to settle won payments directly overseas under a new licence category: Registered Foreign Institutions for KRW Business, or RFI-Ks. Existing registered foreign institutions can apply for the additional licence, open omnibus accounts with Korean banks that handle foreign exchange, and settle won transactions directly through the Bank of Korea's won international payment network.

RFI-Ks will be permitted to handle remittances, investments and securities lending and borrowing, as well as make and receive won payments and hold or manage won deposits and other funds. They must verify that their customers are nonresidents and submit monthly transaction reports to Korean authorities. The authorities may also restrict how RFI-Ks raise and use won-denominated funds, and limit the scope of their assets and liabilities, if deemed necessary.

The change is part of a broader road map announced in July to internationalize the Korean won. Previously, foreign customers had to open separate accounts with foreign exchange banks in Korea to use the system, creating an extra hurdle for offshore won transactions. Under the new framework, a US investor, for example, could open a won-denominated account with a local bank and use it to fund investments in Korean equities or bonds without opening an account in Korea. The move follows the extension of won-dollar trading to 24 hours in July.

Korea still has a limited share of global currency markets. According to the Bank for International Settlements, the won accounted for just 1.8 percent of global foreign exchange turnover as of the end of last year, compared with 89.1 percent for the US dollar, 28.5 percent for the euro, 16.9 percent for the Japanese yen, 10.2 percent for the British pound and 8.6 percent for the Chinese yuan.

Inside the Push to Internationalize the Korean Won

Why the won remains a minor global FX currency

The BIS figure is the clearest explanation for the policy change. At 1.8 percent of global foreign exchange turnover, the won is far below Korea's weight in global trade and capital markets. The government's argument is that restrictions on offshore won transactions have suppressed demand for won-denominated settlement outside Korea, making the currency less useful and less liquid for foreign investors.

The MSCI reclassification is a driving force

Korean authorities are not only trying to deepen the currency market; they also want to secure an upgrade from emerging market to developed market status in the Morgan Stanley Capital International index. MSCI has long cited the won's limited offshore convertibility as one of the main obstacles to reclassification. By extending won-dollar trading hours and now allowing direct overseas settlement, Seoul is trying to remove a persistent concern raised by foreign investors.

Who gains and who feels the pressure

The clearest winners are foreign banks and financial institutions that serve nonresident clients investing in Korean assets. They gain new business without requiring customers to open separate accounts in Korea. Foreign investors also gain by holding and transacting in won through institutions in their own countries. Domestic Korean foreign exchange banks may feel some pressure because they lose part of their previous intermediary role, although they remain central to the omnibus account structure. The main remaining constraint is regulatory: RFI-Ks must meet reporting and verification requirements, and Seoul can limit how they fund and use won balances.

What the RFI-K Shift Means for Market Participants

For the financial institutions and investors directly affected, the new framework has specific operating consequences.

  • Foreign banks and brokers active in Korean assets should evaluate whether the RFI-K licence can replace the previous separate-account requirement for their nonresident clients and expand their won settlement, deposit and securities-lending services.
  • Compliance teams should build processes for the monthly transaction reports to Korean authorities and for verifying that customers using the new facility are genuinely nonresidents.
  • Foreign investors in Korean equities and bonds can test whether holding a won account with a local institution removes the operational burden of opening Korean accounts directly, while noting that authorities may still restrict certain uses of won funds.
  • Korean exporters with overseas customers can begin discussing won-denominated invoicing, since foreign counterparties are now better positioned to hold and pay in won through banks in their own countries.

Risk & Opportunity Assessment

Commercial RiskMediumAuthorities may restrict how RFI-Ks raise and use won-denominated funds and limit the scope of their assets and liabilities, potentially reducing the commercial appeal of the licence.
Competitive RiskMediumDirect settlement through the Bank of Korea's won international payment network could reduce the intermediary role of domestic foreign exchange banks as foreign institutions compete for offshore won payment flows.
Regulatory RiskMediumRFI-Ks face mandatory nonresident verification and monthly transaction reporting, and the Korean authorities retain powers to impose additional restrictions on funding and usage.
Reputation RiskLowNo reputational issue is directly triggered, though any settlement or compliance failure could weaken the credibility of Korea's push for MSCI developed-market status.
Technology DisruptionLowThe framework relies on the existing Bank of Korea won international payment network rather than introducing a new technological system.
Commercial OpportunityHighThe RFI-K licence opens remittances, investments, securities lending and borrowing, won payments and won deposits to nonresident customers, directly supporting Korea's effort to expand the won's global role and its bid for MSCI developed-market classification.