Korea asks for enhanced internal control at Morgan Stanley, Merrill Lynch

[Photo by Kim Ho-young]

South Korea’s Financial Supervisory Service (FSS) has asked Morgan Stanley & Co. and Merrill Lynch & Co. to enhance internal control at their Seoul branches following a recent inspection.

According to industry sources on Monday, the FSS requested corrective actions from Morgan Stanley and Merrill Lynch after inspecting their Seoul branches for a lack of internal control in their independent trading units at the Seoul offices. The FSS issued two management cautions for Morgan Stanley and a caution for Merrill Lynch.

The inspection of the Seoul branches of these international brokerage houses revealed errors in filling out the purchase and sales order and execution history forms, as well as the daily net reserve balance and loan balance forms.

The inspection also found a lack of systematic management of loan transactions, prompting the financial authority to ask for regular monitoring of relevant data, including net reserve balances and internal transactions between independent trading units.

The inspection also discovered that Morgan Stanley’s Seoul branch had inadequate correction procedures for misplaced or erroneous orders.

The FSS pointed out that Morgan Stanley Seoul needs to strengthen its review and confirmation procedures by requiring relevant departments to verify the reasons for any correction of misplaced orders and the appropriateness of the correction before approving it, so as to prevent regulatory evasion through corrections made the next day.