Park Han-sol reports on Korea's financial regulators, along with fintech and insurance. She previously wrote about the art world, from biennales and exhibitions to fairs and auctions, with a focus on Seoul and the figures shaping the scene. Before joining The Korea Times, she spent a year at ABC News' Seoul bureau, contributing to coverage of major Asia-Pacific events.
Watchdog intensifies pressure on financial firms amid persistent won weakness
An electronic board at a currency exchange office in central Seoul displays foreign exchange rates, Sunday, as the average won-dollar rate for the second quarter rose to its highlest level since since the aftermath of the Asian financial crisis in 1998. Yonhap
By Park Han-sol
Korea's financial watchdog is launching a series of meetings with banks, brokerages and insurers as policymakers step up efforts to curb volatility in the foreign exchange market amid persistent weakness in the won.
The move comes as expectations of higher U.S. interest rates and sustained foreign investor outflows continue to weigh on the Korean currency. The Financial Supervisory Service (FSS) began consultations with the banking sector on Tuesday and plans to hold similar meetings with securities firms and insurers in the near future.
The won has come under mounting pressure as overseas investors lock in gains and rebalance portfolios away from Korean equities. As of Friday, the average won-dollar exchange rate for the second quarter had risen to 1,491 won, its highest level since the aftermath of the Asian financial crisis in 1998. The currency has also traded above the psychologically significant 1,500-per-dollar threshold for 16 sessions.
In Seoul's onshore foreign exchange market, the won closed at 1,512.1 per dollar, strengthening by 22.9 won from the previous session.
At Tuesday's meeting, the FSS gathered senior executives from major domestic and foreign banks to assess market conditions and discuss the drivers behind the recent surge in volatility. Banks were first to be called in as they are viewed as the first line of defense in the country's foreign exchange flows.
According to industry officials, the watchdog reportedly asked lenders to avoid aggressively marketing dollar-denominated products, such as foreign currency deposits. It also plans to keep a close watch on the offshore non-deliverable forward (NDF) market, where sharp swings in expectations can spill over into onshore currency trading.
Authorities also expected to reiterate their commitment to cracking down on speculative activity and any attempts to exploit the won's weakness.
Follow-up consultations with securities firms and insurers are expected to focus on sector-specific risks.
Brokerages may be urged to exercise caution in promoting overseas investment products and to ensure that investors are fully informed of the foreign exchange risks associated with such investments.
Insurers, meanwhile, could face scrutiny over a potential rise in sales of dollar-denominated insurance products, along with the risk of mis-selling. FSS may also discourage excessive expansion of overseas investments at a time when demand for foreign currency remains elevated.
The latest meetings form part of a broader effort by policymakers to stabilize sentiment as pressure on the won intensifies.
The heads of four key economic agencies — the Ministry of Finance and Economy, the Bank of Korea, the Financial Services Commission and FSS — convened an unscheduled emergency meeting Sunday to assess market conditions. A day later, authorities issued a verbal warning, pledging to respond forcefully to excessive volatility and one-way market moves that diverge from economic fundamentals.