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Korea to tighten inspection of capital flows

Korea’s financial regulator said it plans to tighten inspections of capital flows this year to improve the soundness of its foreign-currency market.

“There are persisting destabilizing factors in the global financial markets following the Group of 20 meeting, such as volatile capital movements and currency wars among major countries,” the Financial Supervisory Service said Monday in an e-mailed statement. It didn’t provide details on how it will tighten the inspections.

The agency said it will increase monitoring on big local financial companies.

Korea aims to join China and South Africa in trying to limit currency volatility as near-zero borrowing costs in the U.S. and Japan spur demand for higher-yielding assets in emerging markets. The nation plans to tighten curbs on banks’ holdings of foreign-exchange derivatives, lowering existing limits by a fifth, an official at the FSS said on Dec. 29.

Korea’s existing limits on banks’ use of currency derivatives took effect in October and are subject to review every three months.

The FSS will look into financial institutions’ foreign-currency funding and operations as well as their risk management, according to the statement. It’ll also monitor foreign-currency derivatives trading including over-the-counter trades, the FSS said.