Financial Supervisory Service Targets Forex Market Speculation, Urges Banks to Curb Dollar Marketing

Financial Supervisory Service (FSS) has urged banks to refrain from aggressive dollar deposit marketing and to strengthen management of foreign exchange positions in response to increased volatility in the forex market. The FSS will also enhance inspections of speculative forex trading and market disruption activities.

According to the financial sector on June 9, the FSS held a meeting on "Stabilizing the Forex Market" led by Kim Sung-wook, Deputy Director of the Banking and Small Finance Division. The meeting included executives responsible for foreign currency and funding from major commercial banks and foreign bank branches.

The meeting aimed to review trends in the banking sector and the foreign currency funding market, as well as to discuss specific responses to the heightened volatility in the forex market.

The FSS first advised banks to avoid excessive dollar deposit events or marketing competitions in the current environment of high exchange rate volatility and to enhance consumer guidance regarding the risks of foreign exchange losses.

Additionally, the FSS urged banks to refrain from engaging in speculative forex trading that could lead to excessive exchange rate increases and indicated that strict measures would be taken against market disruption activities such as price fluctuations.

In particular, the FSS requested banks to actively cooperate to prevent offshore non-deliverable forward (NDF) derivative trading from exacerbating volatility and concentration in the domestic forex market.

Furthermore, the FSS decided to shorten the inspection cycle for foreign exchange positions at major banks from monthly to weekly for temporary management and to extend the suspension of enhanced foreign currency liquidity stress test supervision until the end of this year.

The FSS plans to jointly inspect speculative trading and market disruption activities that exploit the weakening of the won in collaboration with the Bank of Korea and other relevant agencies.

Kim Sung-wook, Deputy Director of the FSS, stated, "I urge the banking sector to adhere to trading norms in the forex market and to strengthen internal controls to prevent market disruption activities. We will closely monitor market conditions and implement necessary measures in a timely manner."