Seoul cracks down hard on foreign banks, securities firms

By Kang Seung-woo

Korea’s financial regulator is taking stricter action against offending global financial institutions.

In addition, it is crossing borders, conducting a probe on Deutsche Bank in Hong Kong on suspicion of triggering a stock market shock last month.

The Financial Supervisory Service (FSS) has slapped penalties on units of Barclays Bank, JP Morgan Chase, Bank of Nova Scotia, OCBC Bank and Nomura Securities.

The Barclays branch received a reprimand, with its four current and former employees punished last week for violating banking rules over foreign exchange trading, the FSS said.

The nation’s financial watchdog said the Barclays branch was responsible for incurring 36.5 billion won ($31.8 million) in losses for its clients by failing to adopt proper risk-management methods when it traded $1.2 billion of currency options with three local companies between June 2006 and November 2007.

The FSS also said that it failed to file regulatory reports with authorities over currency futures.

One staff member at the Seoul branch of JP Morgan Chase was also recently punished for overlooking corporate clients’ high-risk trading of over-the-counter financial derivatives worth $189 million.

The branches of the Canada-based Bank of Nova Scotia and Singapore’s OCBC Bank each received a reprimand and a fine, for releasing loans in excess of allowable levels, the regulator said.

The Seoul branch of Nomura Securities saw five employees reprimanded for conveying inside information to overseas institutional investors, the FSS said.

The regulator said that it is not targeting the foreign financial institutions operating in Korea.

“The punishments came out at the same time because the outcome of the FSS’s routine inspections of foreign financial institutions’ branches were dealt with together. There are no other reasons,” an official of the FSS said.

Meanwhile, the financial authority has sent five officials to investigate Deutsche Bank securities units, to determine whether it was involved in the heavy selling of Korean stocks on Nov. 11, which resulted in the KOSPI plunging 53.12 points.

The Germany-based lender is under suspicion that it might have made a massive amount in illegal profits on the day by trading high-leverage derivatives for itself before executing orders received from customers, which is a breach of the regulations on insider trading.

Dating back to September, the FSS, headed by Governor Kim Jong-chang, made a decision to hand down a two-month suspension of the Seoul branch of Iranian Bank Mellat for breaking a local foreign exchange trade act that requires banks in Korea to receive advance approval from the head of the Bank of Korea (BOK) to make a foreign currency transaction.