South Korea to step up monitoring of FX liquidity for non-banking institutions

SEOUL: South Korea said on Wednesday it will improve and strengthen the monitoring system of foreign exchange liquidity for non-banking institutions, given their vulnerability seen during the COVID-19 shock and to prepare for any future FX liquidity risks.

"A sudden surge in dollar demand in non-banking institutions, such as securities firms and insurers is believed to have triggered instability in the local FX market in March last year," senior finance ministry official Kim Seong-wook told a briefing.

"We believe giving the market a clear signal that the financial authorities will continue to monitor and improve (FX liquidity) system could help financial institutions, securities firms and insurers on their risk management related to overseas investments," he added.

Equity-linked securities (ELS) products based on foreign indexes saw heavy losses amid an overall plunge in markets in March, leading to hefty margin calls and a liquidity crunch for many local brokerages.

As part of the guidelines, financial authorities will introduce three indicators to help monitor the dollar funding and operation of non-banking companies, the finance ministry said.

Other measures include mandating brokerages to hold more than 20% of the hedge assets of ELS in the form of quickly cashable foreign currency assets.

Authorities will also launch a committee to enhance the soundness of the FX market, and plan to establish a system that will ensure smooth dollar supply to securities firms in case of crisis events.