Bank of Korea, FSS Launch Joint Inspection of Foreign Exchange Banks Amid High Rates

South Korea's financial authorities are intensifying scrutiny of the foreign exchange market amid persistent high exchange rates. The Bank of Korea and the Financial Supervisory Service (FSS) commenced a joint inspection on June 10 of major foreign exchange banks. This move targets activities aimed at manipulating foreign exchange rates for undue profit or to benefit third parties, which could destabilize the market.

The inspection will cover a broad range of practices by domestic commercial, regional, and special banks. Specifically, authorities will examine transactions conducted with the intent to disrupt market functions or interfere with price discovery. This includes instances where banks engage in large, one-sided transactions at specific times, potentially to induce unfavorable price movements for their clients.

Both the Bank of Korea and the FSS have stated they will take strict measures against any banks found to have violated relevant laws. The Foreign Exchange Transactions Act stipulates penalties of up to five years in prison or fines of up to 500 million won for actions that distort or fix foreign exchange rates for improper gain or to benefit others, thereby harming sound transaction order.

The won-dollar exchange rate has been a point of concern, surpassing the 1,500 won mark on May 15 and remaining above this level for more than three weeks. This sustained high rate has prompted the authorities to take a closer look at the practices of financial institutions involved in foreign exchange trading.