Enforcement: Korea's FSS disciplines foreign institutions

The FSS has not named the three banks concerned which undermines the basic principles of regulatory enforcement which, amongst other things, is useful when assessing the risk of dealing with counterparties.

The following enforcement actions have been concluded:

Bank A (Seoul branch) -

Findings: Improperly outsourcing derivatives trading business from its Hong Kong branch

Breach: Found to have breached Article 42 of Capital Market and Financial Investment Business Act by outsourcing from its Hong Kong branch dealer derivatives trading business (interest rate swap, currency swap, etc.) *KRW74.7 billion (million million) in 1,877 cases and U$18,280 million in 72 cases from 21 Sept., 2007 to 31 Dec., 2009 (in nominal amount)

Sanctions: (Institution) Institutional warning, (3 executives and employees) pay cuts to caution

Bank B (Seoul branch)

Findings: Improperly outsourcing derivatives trading business from its Hong Kong branch
Breach: Found to have breached Article 42 of Capital Market and Financial Investment Business Act by improperly outsourcing derivatives trading business (non-generic interest rate swap, etc.) from its Hong Kong branch dealer. *KRW6.164 billion (million million) in 77 cases and U$12 million in 1 case from 4 Feb., 2009 to 24 May, 2010 (in nominal amount)

Sanctions: (Institution) Institutional warning, (4 executives and employees) pay cuts to cautionary warning

Bank C (Seoul branch)

Findings: Improperly outsourcing financial investment products trading business from its regional headquarters in Singapore.

Breach: Found to have breached Article 42 of Capital Market and Financial Investment Business Act by improperly outsourcing financial investment products trading business (won-dollar currency options, FX spot, forward, NDF) from its Singapore headquarters.
*U$443 million in 142 cases from 12 Apr., 2007 to 12 Nov., 2009 (equivalent to KRW456,000 million, in nominal amount)

Sanctions: Sanction procedures underway

The breaches all involved similar conduct in which quotations were presented from the overseas office to domestic financial institutions and investors. The derivatives transactions were booked in Seoul. Payments at maturity were passed to the foreign banks' branches in Seoul which then settled with the foreign bank at its overseas offices.