Antitrust Agency to Inspect Banks Over Currency Options

By Park Hyong-ki

Staff Reporter

The country's antitrust agency has joined the financial investigative body to inspect banks over business irregularities involving currency options.

The Fair Trade Commission (FTC) said it plans to first examine a local bank after receiving complaints from a small electronics firm over losses due to transactions of the Knock-In Knock-Out (KIKO) options product.

``We plan to inspect whether banks unfairly provided such a product to small firms, and to see whether they fully explained to their clients the possible risks involved in using such a service,'' said an FTC official.

The Financial Supervisory Service (FSS), an investigative body of the Financial Services Commission, is currently examining banks and reviewing complaints filed by small- and medium-sized enterprises, which were the main victims of KIKO options amid increasing volatility on the foreign exchange (forex) market.

The regulatory body noted that it will expand the scope of its investigation once it discovers more regarding the KIKO problem, which a number of small exporting companies claim was caused by the banks

KIKO options enable firms to sell dollars at a fixed won-dollar rate if the exchange rate stays within a range set in the contract, guaranteeing exporters a fixed profit even if the dollar weakens against the won.

However, if the exchange rate moves out of the fixed range amid growing volatility, companies can lose heavily by purchasing expensive dollars on the forex market and selling them cheaply to banks.

Small companies were drawn to such product as banks told them that they would be able to hedge risks against forex fluctuations on low commission fees.

Some 120 members of the Korea Federation of Small and Medium Business (KBIZ), an interest body for small enterprises, filed a complaint with the antitrust regulator over malpractices by banks regarding KIKO options.

They say they will take legal action against the banks if necessary.

According to a KBIZ survey on 174 members, about 60 percent saw losses below 100 million won from the options product. One out of three subscribed to KIKO, it noted.

phk@koreatimes.co.kr