Bank of China’s Seoul branch penalized

The Seoul branch of the Bank of China has been punished for violating rules on currency trading, regulators said Tuesday.

It’s the first time that a Chinese bank has been sanctioned by regulators here. One of its employees received a disciplinary measure regarding the case, according to the Financial Supervisory Service (FSS).

The Seoul branches of six other foreign financial firms were also disciplined for “minor” offenses they committed while engaging in derivative transactions. They are Credit Agricole Corporate and Investment Bank, Societe Generale, BNP Pariba, HSBC, Barclays and Deutsche Bank.

The FSS is also zeroing in on Standard Chartered (SC) Bank Korea. The lender is suspected of having engaged in accounting fraud while conducting derivative transactions with SC’s subsidiary in Hong Kong.

“The amount of these questionable transactions may surpass 1.2 trillion won ($1.13 billion). We are looking into currency and interest rate swap deals between SC’s Korean and Hong Kong subsidiaries,” an FSS official said, without commenting on details.

If these allegations are true, SC Bank Korea may receive much heavier punishment than other foreign banks.

“The violations committed by SC Bank Korea appear to be much more serious. It secured illegal gains through insider trading and manipulated these transactions,” the official said.

The suspected deals took place under former CEO Richard Hill between 2010 and 2013, according to the FSS. The British firm recently replaced Hill with Ajay Kanwal, former CEO of SC Bank Taiwan.

The FSS official refused to comment on whether Hill will be subject to punitive measures.

An SC Bank Korea official admitted that the lender is being examined regarding the currency deals, but said it’s too early to talk about possible regulatory sanctions against the bank.

“It’s just an investigation into suspected transactions. The FSS has not yet determined whether to punish us,” the official said.

The Bank of China’s Seoul office set up an outlet in Guro-gu, Seoul, in May 2008 to expand its currency-related business, but failed to report this until November.

Under the current rules, branches or subsidiaries of foreign financial firms must report to the FSS at least seven days before creating or abolishing offices here.

The FSS is currently inspecting the Seoul branches of Chinese banks over allegations that they have sent excessive amounts of yuan to their parent firms in China to earn short-term gains resulting from interest rate differences between the two countries.

The Korean regulators appear to be toughening their stance on questionable business practices and violations committed by foreign financial firms here.

This is because diverse foreign firms are seeking to expand business in Korea. They include India’s largest state-owned bank, the State Bank of India, which recently applied for regulatory approval for its plan to expand its Seoul office. By Na Jeong-ju, The Korea Times