The South Korean currency later pared losses following repeated verbal intervention by financial authorities, but officials remain on alert as expectations of further U.S. rate hikes and geopolitical uncertainty continue to fuel sharp swings in the foreign exchange market.
The FSS held an FX stabilization meeting Tuesday with treasury executives from major commercial banks and foreign bank branches, following a broader interagency meeting on the foreign exchange market a day earlier.
The regulator said it will work with the central bank to examine whether recent market volatility and won weakness have been used for speculative transactions or other activities that distort market prices.
Foreign bank branches with large positions in non-deliverable forwards (NDFs) are expected to be among the first targets of the inspections.
FSS' senior vice governor Kim Sung-uk urged banks to comply with foreign exchange trading rules and strengthen internal controls against market-disrupting behavior.
The FSS also told banks to avoid aggressive marketing campaigns or excessive competition to attract dollar deposits at a time of heightened exchange-rate volatility. Banks were also asked to give clearer guidance to consumers on potential foreign exchange losses.
The regulator specifically called for stronger cooperation to ensure offshore NDF trading does not add to volatility or one-way bets in the domestic foreign exchange market.
The FSS will temporarily tighten oversight of major banks' foreign exchange positions by shortening the review cycle from monthly to weekly or even daily checks.
At the same time, the regulator will extend by six months, through the end of this year, a grace period for supervisory measures tied to advanced foreign currency liquidity stress tests.
Moon Ji-sung, deputy minister for international affairs at the Ministry of Economy and Finance, also reaffirmed that authorities will respond sternly to speculative trading that undermines market order.
The FSS also plans to call in other major financial sectors, including securities firms and insurers, to review risk controls related to overseas investment marketing, dollar-denominated insurance products and foreign exchange volatility.
Copyright ⓒ Aju Press All rights reserved.