Foreign bankers suspect ulterior motive behind regulators’ move

By Kim Jae-won

Some officials of foreign banks in Korea reacted harshly to an announcement of penalties on their Korean branches for shuffling derivative trades outside Korea, raising questions about regulators’ intentions.

They pointed out that all matters were settled last year with remedial steps taken but at least one indicated revealing it belatedly may have something to do with the plight facing regulators in connection with cases of corruption and incompetency over the unfolding scandal over troubled savings banks.

“I cannot understand why the Financial Supervisory Service (FSS) is revealing it now,” a high-ranking official of a foreign lender said on condition of anonymity. “As far as our understanding goes on the basis of indications they have given us, the case should have been closed with all necessary steps recommended and taken.”

He pointed out the circumstances under which it was disclosed, giving ample grounds to believe that he was indicating the savings bank trouble without saying it out loud.

Some foreign lenders also complained about the way this case was portrayed by the regulators and the media as something that affects the entire foreign banking community, when in fact the trades were limited to a very few branches.

“Investment banks provide services for institutional investors but don’t engage in actual trading,” said an executive of a U.S.-based investment bank asking not to be named.

Besides HSBC and Credit Agricole of France, which the regulators confirmed were penalized, and the Royal Bank of Scotland, which is reportedly up for a possible penalty, another European bank is under investigation, a banking source said.

At issue is a regulation that bans Seoul branches of foreign lenders handing over their core business to their foreign branches. Most foreign bankers who were contacted said that they would not comment on the veracity of the regulation.

Meanwhile, the financial authorities said the penalties were made public to raise the alarm among foreign lenders and to prevent a recurrence of such violations.

The FSS made it public that it imposed sanctions on three foreign lenders’ branches, saying that it was the result of a long-term investigation.

The FSS has been embroiled in the biggest crisis it has ever faced with its former chief under suspicion for involvement in the corruption scandal involving the Busan Mutual Savings Bank.