Korea's Financial Supervisory Service has requested the Seoul branch offices of two securities firms -- Morgan Stanley and Merrill Lynch -- to enhance their internal management in response to identified deficiencies in their books.

Morgan Stanley had two instances of such management caution cases, while Merrill Lynch had one case identified during the inspections conducted by the financial regulator.

Although these deficiencies do not involve legal violations, both securities firms are obligated to submit post-inspection measures to address these issues to the FSS.

“The measures should be submitted within six months,” a FSS official said.

Both firms’ Seoul branches were found to have writing errors in trade order and execution records, as well as daily net assets.

Moreover, they both had errors in recording margin trading transactions. This error occurred due to an incorrect application of the time frame for calculating margin balances by using the time when writing the book instead of the actual trading time.

As a result, the FSS issued one management caution to each firm and emphasized the need to regularly verify the consistency of data particularly related to the net holding balances and margin transaction records as well as internal transactions.

Additionally, it came to light that Morgan Stanley's Seoul branch did not adequately review the reasons for amending stock trading orders while processing next-day corrections upon requests from clients.

The FSS highlighted that reviewing such requests is important, as it can filter out potential regulatory violations.

“Morgan Stanley should thoroughly examine the specific reasons for amendments and assess their appropriateness before granting approval in the future,” the FSS official stressed.

These correction requests came after Lee Bok-hyun, governor of the FSS, called for foreign financial companies to prioritize the improvement of internal controls during a roundtable meeting with their CEOs in Seoul earlier this month.

"It is crucial for (foreign) firms’ management to consistently strengthen internal controls," Lee said during the meeting.

According to industry sources, these requests are also seen as a firm demonstration of Korean financial authorities' resolute stance against recent violations by foreign financial firms.

On July 23, the FSS also ordered three Chinese banks -- Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank -- operating in Seoul to take disciplinary action after they were found to have violated disclosure and reporting obligations.

The watchdog ordered the Chinese firms to autonomously handle their employees involved in these violations. Autonomous handling refers to the practice where the FSS allows a company to impose penalties autonomously according to its internal rules and regulations.