South Korea

A Korean investment trader or investment broker dealing in OTC derivatives checks the guidelines, such as the limits on dealing with ordinary investors and the monthly reporting. A financial investment business entity entering into an interest rate swap that may be subject to clearing checks whether the swap falls under the clearing obligation.

Where Korea's OTC derivatives regulation sits

The core of Korea's OTC derivative regulation is the Financial Investment Services and Capital Markets Act (the "FSCMA") and its Enforcement Decree. Law names and provisions follow the English translation by the Korea Legislation Research Institute¹.

The regulation requires investment traders and investment brokers to follow guidelines when dealing in OTC derivatives, and requires certain OTC derivatives to be cleared centrally. Trade reporting and margin for uncleared OTC derivatives are covered in the "Trade reporting and margin" section.

The governing law and the supervising authorities

The legal basis is split between articles of the FSCMA and articles of the Enforcement Decree. The Act sets the framework and leaves the scope of covered transactions and persons to the Enforcement Decree.

The supervising authority is the Financial Services Commission (FSC). The Financial Services Commission is an agency under the jurisdiction of the Prime Minister that handles financial policy and financial supervision, among other duties². Affairs concerning the management, supervision, and surveillance of capital markets are also among the Commission's affairs³.

The Financial Supervisory Service (FSS) carries out inspection and supervision in practice. The FSS is a special corporation without capital that inspects and supervises financial institutions under the guidance and supervision of the FSC and others. The institutions it inspects include banks and the financial investment business entities under the FSCMA⁴. The FSCMA entrusts the supervision of the guidelines for OTC derivatives to the Governor of the FSS⁵.

The provisions were checked against the versions of the English translations published as of October 6, 2026 (the FSCMA up to the amendment promulgated on September 16, 2025, and the Enforcement Decree up to the Presidential Decree of June 30, 2026)⁶.

The definition and the guidelines

The FSCMA defines a derivative as a contract under which money or other value is paid or received depending on the price of an underlying asset, an interest rate, an indicator, a unit, or an index based on any of these (including contracts that correspond to forwards, options, and swaps). Any derivative other than one traded on an exchange is an OTC derivative. Exchange-traded derivatives fall into three groups⁷.

• Those traded on a domestic derivatives market
• Those traded on an overseas market (a foreign market similar to a domestic derivatives market, where foreign derivatives specified by the Enforcement Decree are traded)
• Those traded under standards and methods set by the operator of a financial investment products market

Financial investment business entities include those engaged in investment trading, investment brokerage, collective investment, investment advisory, discretionary investment, and trust business. Among them, a person who trades for its own account is an investment trader, and a person who acts as an intermediary, broker, or agent in trades for the account of others is an investment broker⁸. The FSCMA sets the following guidelines for these two types of entities when they deal in OTC derivatives⁹.

The guidelines have the following details.

• For the limit on dealing with ordinary investors, the entity checks the type and amount of the risk the investor intends to hedge and keeps the records.
• The capital ratio is the amount obtained by subtracting total risk from net operating capital, divided by the total required equity capital. If it falls below 150/100, the entity handles only the performance of existing transactions and risk hedging.
• The approval for each transaction is not required for transactions under contracts that meet the standards publicly notified by the FSC and are made on conditions set in advance.
• The monthly report covers the OTC derivatives the entity has traded or intermediated, including derivatives-linked securities.
• Prior deliberation applies when newly handling an OTC derivative whose underlying asset is credit risk or another risk based on natural, environmental, or economic phenomena, or an OTC derivative aimed at ordinary investors¹⁰. The deliberation is by the Korea Financial Investment Association, and cases specified by the Enforcement Decree are excluded¹¹.

The methods of risk management and other matters needed to protect investors are to be set and publicly notified by the FSC¹².

The "risk hedging" required by the limit on dealing with ordinary investors is defined in the Enforcement Decree by two conditions¹³.

• The object of the hedge is an asset, liability, contract, or the like that the transacting party holds or plans to hold
• The profit or loss that the OTC derivative may generate during the contract period does not exceed the range of profit or loss that may arise on the hedged object

Consider a hypothetical example in which Bank D qualifies as an investment trader or investment broker and enters into an OTC derivative with a customer who is an ordinary investor. Suppose the customer holds a floating-rate loan and enters into an interest rate swap to reduce the risk of changes in its interest rate. If the profit or loss the swap may generate stays within the range of the profit or loss the loan's interest rate changes may generate, the two conditions are met. A swap entered into without any such loan, or one that can produce a profit or loss beyond what the loan can produce, does not meet them.

The clearing obligation and central counterparties

The FSCMA applies when a financial investment business entity enters into a specified OTC derivative transaction, or another over-the-counter transaction, with another such entity or a person specified by the Enforcement Decree. In that case, it requires a central counterparty or similar entity to assume the entity's obligations. "Another over-the-counter transaction" is limited to one whose default is likely to have a material effect on the domestic capital market. The obligations are taken on through assumption, novation, or a similar legally binding arrangement¹⁴.

The Enforcement Decree narrows the scope as follows¹⁵.

• The counterparty is a financial investment business entity or a foreign financial investment business entity.
• The covered transaction is one in which fixed and floating interest are exchanged periodically in won, on a won-denominated principal. Requirements such as the underlying asset and maturity are publicly notified by the FSC. Transactions that are publicly notified as not clearable at a central counterparty are excluded.
• The entity that assumes the obligations is a domestic central counterparty or a foreign central counterparty approved by the FSC. A foreign clearing house must meet requirements that include licensing and supervision by the local authority, access to information on a reciprocal basis, and an agreement on cooperation between the FSC and the local authority.

Figure 1 lines up, in the order of the questions, the conditions above on the parties, the type of transaction, and the exclusion of transactions that cannot be cleared.

Figure description

The 4 questions check, from the top, the firm, the counterparty, the content of the transaction, and whether it is notified as not clearable. For the first 3, a no means the transaction is not covered; for the last, a yes does. A transaction that passes all 4 is, in principle, subject to the clearing obligation. The notified requirements (such as the underlying asset and maturity), the requirements for the entity that assumes the obligations (in the bulleted list before the figure), and the conditions for "another over-the-counter transaction" are not shown.

Consider a hypothetical example in which the firm is a financial investment business entity and the transaction is not one that a notice has declared not clearable.

Even for Examples 2 and 3, this figure does not judge whether the conditions for "another over-the-counter transaction" apply.

To become a domestic central counterparty, an entity obtains authorization from the FSC for each line of business¹⁶.

A central counterparty is obliged to keep trade information and report it to the FSC and others. However, information on the transactions subject to the clearing obligation is excluded from the retention requirement set by the Enforcement Decree. What must be kept is the information on the transactions subject to central clearing business, minus the information on the transactions subject to the clearing obligation. The retention period is 10 years. The central counterparty reports the transactions subject to clearing and the status of the clearing members' performance of their obligations to the FSC every month¹⁷.

A violation of the obligation to keep and report trade information, or a false report, is subject to the penalties in the Act (imprisonment for up to 1 year or a fine of up to 30 million won)¹⁸.

Trade reporting and margin

The English translation of the FSCMA has no article that sets an obligation for financial investment business entities to report trade information to a trade repository, or an obligation to post margin on uncleared OTC derivatives. The amendment history of the translation covers the Act promulgated on September 16, 2025.

English-language announcements by the FSC mention plans to put these into the Act.

• In March 2017, margin requirements for uncleared OTC derivatives were introduced in the form of administrative guidance by the FSS. As of July 2019, variation margin applied to 76 financial institutions¹⁹.
• On March 3, 2020, the FSC announced that a bill to amend the FSCMA had been approved by the Cabinet. The bill would give trade repositories a legal basis, and trade repositories were scheduled to be introduced in October 2020 through an amendment to the regulation on financial investment business. The bill had three parts²⁰.
  • A reporting obligation on financial investment business entities for their trade information (with a penalty of up to 100 million won for violations)
  • The authorization and supervision of trade repositories
  • Margin requirements for financial institutions whose outstanding uncleared OTC derivatives exceed 3 trillion won
• In May 2020, the FSC announced that it would postpone the introduction of the original initial margin requirements by one year. Institutions with uncleared derivatives of 70 trillion won or more would start on September 1, 2021, and those with 10 trillion won or more but less than 70 trillion won on September 1, 2022²¹.
• On June 30, 2020, the FSC announced that a bill with the same aim had been approved by the Cabinet and was scheduled to be submitted to the National Assembly in July²².

These are announcements of bills and plans. Korea's implementation status in the September 2022 report of the Financial Stability Board (FSB) is covered in Overview of Derivatives Regulation in Asia-Pacific.

Dates when provisions were added and amended

The dates on which provisions were added, as shown in the English translation, are below. "Added" in the table means the date of promulgation of the amendment that added the provision, not the date it took effect.

The article that sets the guidelines was amended on March 12, 2010 and April 18, 2017 after it was added²³. For the provisions added in 2013, the Act took effect 3 months after promulgation, and the Enforcement Decree took effect on July 6, 2013 (both according to the addenda)²³²⁴.

Points to check in practice

An investment trader or investment broker must obtain the approval of the person in charge of derivatives business for each transaction, and report the details to the FSC by the 10th of the following month. The approval is not required for transactions under contracts that meet the standards publicly notified by the FSC and are made on conditions set in advance. A central counterparty reports the transactions subject to clearing and other matters to the FSC every month.

These details are set by FSC notices, in addition to the FSCMA and the Enforcement Decree. The following points are left to the notices²⁵.

• The cap on risk amounts
• The standards for contracts that are exceptions to the approval for each transaction
• The methods of risk management and others
• The requirements for transactions subject to clearing, and the transactions that cannot be cleared
• The format and procedure of the central counterparty's monthly report

What this article does not cover

The content of FSC notices and FSS guidelines is not covered on this page. Whether the Act providing for trade repositories and margin requirements was enacted, and its text, are not covered on this page. When the clearing obligation actually began to apply is not covered on this page. The effective dates of the guidelines article and the corresponding Enforcement Decree article are not covered on this page.

How the limits on "another over-the-counter transaction" apply is not covered on this page. The content of the foreign derivatives specified by the Enforcement Decree, the standards set by operators of financial investment products markets, and how penalties and administrative fines are applied are not covered on this page.

Notes

1. English translation by the Korea Legislation Research Institute (Korea Law Translation Center). The FSCMA is "FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT," and the Enforcement Decree is "ENFORCEMENT DECREE OF THE FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT." ↩

2. "ACT ON THE ESTABLISHMENT OF FINANCIAL SERVICES COMMISSION" (the FSC Act), Article 3, paragraph 1 (establishment and status of the FSC). ↩

3. FSC Act, Article 17, item 4 (matters concerning the management, supervision, and surveillance of capital markets). ↩

4. FSC Act, Article 24, paragraphs 1 and 2 (establishment and status of the FSS), Article 37, items 1 and 2 (inspection and sanctions), and Article 38, items 1 and 2 (banks and financial investment business entities subject to inspection). ↩

5. FSCMA, Article 166-2, paragraph 3. ↩

6. The notes at the top of the translation pages. The FSCMA shows history up to Act No. 21061 (promulgated September 16, 2025), and the Enforcement Decree up to Presidential Decree No. 36484 (June 30, 2026). ↩

7. FSCMA, Article 5, paragraphs 1 to 3. ↩

8. FSCMA, Article 8, paragraph 1 (financial investment business entity), Article 6, paragraphs 1 to 3 (six types of business, investment trading, investment brokerage), Article 8, paragraphs 2 and 3 (investment trader, investment broker), and Article 9, paragraph 6 (an ordinary investor is an investor other than a professional investor). ↩

9. FSCMA, Article 166-2, paragraph 1, items 1 to 6. The appointment of the person in charge of derivatives business is in Article 28-2. ↩

10. FSCMA, Article 166-2, paragraph 1, item 6. The underlying assets are in Article 4, paragraph 10, item 4 (credit risk) and item 5 (other natural, environmental, and economic risks). ↩

11. The Korea Financial Investment Association is in FSCMA Article 9, paragraph 17, item 1. The exception is in Enforcement Decree Article 177-2, item 1 (where information on the underlying asset and others is sufficiently provided in the market; products aimed at ordinary investors are excluded). ↩

12. FSCMA, Article 166-2, paragraph 2. ↩

13. Enforcement Decree, Article 186-2 (risk-hedging transactions), items 1 and 2. ↩

14. FSCMA, Article 166-3. ↩

15. Enforcement Decree, Article 186-3, paragraphs 1 to 3. ↩

16. FSCMA, Article 323-3, paragraph 1. Central clearing business is defined in Article 9, paragraph 25. ↩

17. FSCMA, Article 323-16, paragraphs 1 to 3. Enforcement Decree, Article 318-9, paragraph 1 (transactions under FSCMA Article 166-3 are excluded from the trade information to be kept), paragraph 2 (10 years), paragraph 3 (monthly reporting), and paragraph 5 (method and procedure are publicly notified). ↩

18. FSCMA, Article 446, main text (imprisonment for up to 1 year or a fine of up to 30 million won), and items 53-2 and 53-3 (violations of the keeping, management, and reporting of trade information). ↩

19. Financial Services Commission, "Implementation Plan for Margin Requirements for Non-centrally Cleared OTC Derivatives" (August 8, 2019), "Domestic progress." ↩

20. Financial Services Commission, "Revision to FSCMA to Enhance Transparency and Reduce Systemic Risks in OTC Derivatives Markets" (March 3, 2020), "Key provisions," items 1 and 2. ↩

21. Financial Services Commission, "Margin Requirements for Non-centrally Cleared OTC Derivatives to be Postponed for One Year" (May 6, 2020). ↩

22. Financial Services Commission, "Government Seeks to Lower Risks in OTC Derivatives Market" (June 30, 2020), "Key revisions," I. ↩

23. FSCMA, end of Article 166-2 ("Added on Feb. 3, 2009," "Amended on Mar. 12, 2010; Apr. 18, 2017"), end of Article 166-3 ("Added on Apr. 5, 2013"), Addenda, Act No. 11758 (April 5, 2013), Article 1. ↩ ↩²

24. Enforcement Decree, end of Article 186-3 ("Added on Jul. 5, 2013"), Addenda, Presidential Decree No. 24655 (July 5, 2013), Article 1. ↩

25. FSCMA, Article 166-2, paragraph 1, items 2 and 4, and paragraph 2. Enforcement Decree, Article 186-3, paragraph 2, and Article 318-9, paragraphs 3 and 5. ↩