The Financial Supervisory Service asked banks to refrain from excessive dollar deposits solicitation and events to respond to increased volatility in the foreign exchange market and a weaker won.
The Financial Supervisory Service (FSS) held a meeting on foreign exchange market stabilization with the banking sector on Dec. 9, presided over by Vice Governor Kim Sung-uk, and discussed these matters.
At the meeting, Vice Governor Kim asked banks to comply on their own with trading norms in the foreign exchange market in preparation for excessive expansion of volatility in the market, and to strengthen internal controls to prevent market-disrupting conduct.
He also asked banks to refrain from excessive events and solicitation related to dollar deposits in a market with high exchange-rate volatility and to strengthen consumer guidance on risks such as foreign exchange losses. Banks were urged to avoid speculative foreign exchange transactions that trigger excessive exchange-rate increases, and were told that strict action will be taken against market-disrupting conduct such as manipulating price movements.
In particular, he called for active cooperation to ensure that offshore non-deliverable forward (NDF) derivatives transactions do not lead to increased volatility or excessive herding in the domestic foreign exchange market.
For major banks, the review cycle for foreign exchange positions will be shortened from monthly to weekly (or daily) to strengthen temporary oversight. The deferral of supervisory measures for the advanced foreign-currency liquidity stress test will also be extended through the end of the year.
The Financial Supervisory Service (FSS) will conduct joint inspections with the Bank of Korea to check for speculative transactions or market-disrupting conduct that take advantage of increased volatility in the foreign exchange market and a weaker won. Anyone who seeks unjust gains by causing or fixing changes in foreign exchange rates faces up to five years in prison or a fine of up to 500 million won.
Starting with banks, the Financial Supervisory Service (FSS) plans to meet sequentially by sector, including securities and insurance. An FSS official said, "While closely monitoring market conditions in preparation for a continued increase in foreign exchange market volatility going forward, we will work closely with the relevant ministries."