Korea’s financial regulator has issued a warning to two local credit card companies -- Hana Card and Lotte Card -- ordering them to improve their customer management system, particularly with regard to money laundering.

This comes after the Financial Supervisory Service reviewed their operations last year and uncovered some “defects.”

“We did not enforce disciplinary measures against the two card companies, but issued a warning about their systems, ordering them to closely monitor their customers who could launder money (overseas),” said an FSS official.

This does not mean that the two card companies are required to break their relationship with these customers, but they need to strengthen their screening process.

Hana Card had been found to categorize customers doing business in Iran, which has been branded as a country that does not comply with the Financial Action Task Force on Money Laundering, as “low threat.”

The agency, meanwhile, uncovered during its regular inspection that Lotte Card did not follow any standard guidelines on evaluating its customers under the category of money laundering.

Those who use credit cards to convert illicit gains into legitimate money are usually corporate clients, according to the FSS.

Hana and Lotte will need to report the improvements they have made to the regulator on a regular basis, the official said.

By Park Hyong-ki (hkp@heraldcorp.com)