South Korea's central bank and financial watchdog will commence a joint examination of major foreign exchange banks starting Wednesday, marking the first such inspection in 14 years.
According to a joint statement, the Bank of Korea and the Financial Supervisory Service stated that the off-site and on-site reviews aim to determine whether the banks are engaged in transactions that could potentially undermine the stability of the foreign exchange market. The statement added that the review will identify if market participants are seeking improper gains for themselves or third parties by manipulating or suppressing exchange rates.
The statement noted that banks found in violation of regulations during the joint inspections will face severe penalties under relevant laws.
This action follows an emergency meeting held by the authorities on June 7th. Last week, as foreign investors sold local stocks and heightened tensions in the Middle East dampened overall risk appetite, the South Korean won fell to its lowest point since 2009. This shift in conditions has prompted regulators to move from verbal warnings to direct scrutiny of bank trading desks.
These measures have contributed to the won appreciating by nearly 2.9% this week, yet its performance remains among the worst in Asia. Year-to-date, it has depreciated by 4.8%, a decline second only to the Indonesian rupiah and the Indian rupee.
Regulators stated on Tuesday that they would crack down on speculative foreign exchange trading and confirmed that the inspection work would begin this week.
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