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The Korean won-U.S. dollar exchange rate is displayed on an electronic board at the dealing room of Hana Bank headquarters in Seoul on Aug. 10. The won opened at 1,525.0 per dollar, up 12.9 won from the previous session. / Yonhap News Agency

The Bank of Korea and the Financial Supervisory Service have launched a joint inspection of major foreign-exchange banks to determine whether recent sharp moves in the won-dollar exchange rate were influenced by market manipulation. Authorities said any violations found would be dealt with strictly under relevant laws and regulations.

According to the Ministry of Finance and Economy on Aug. 10, the two agencies began a joint examination of major foreign-exchange banks. The inspection, conducted under the Foreign Exchange Transactions Act and its enforcement decree, will combine document reviews with on-site examinations.

Regulators will focus on whether banks attempted to move or fix exchange rates to secure improper gains for themselves or third parties. Particular attention will be paid to market-disruptive activities that may have undermined the stability of the foreign-exchange market.

The investigation will cover transactions intended to distort market functions or interfere with the price-discovery process, as well as one-sided trades exceeding customer order volumes in an effort to induce exchange-rate movements unfavorable to clients. Such practices are prohibited under Article 4 of the Seoul FX Market Code of Conduct.

With the won-dollar exchange rate recently surging and market volatility increasing, the government and monetary authorities have stepped up monitoring of speculative trading and activities that could disrupt market order.

The joint inspection is widely seen as a warning to market participants against unfair trading practices and as an effort to stabilize the foreign-exchange market.

A ministry official said, “If violations by banks are confirmed through the joint inspection, strict measures will be taken in accordance with applicable laws and regulations.”

                                                                                                              Lee Ji-hoon