SEOUL, Oct. 17 (Yonhap) -- South Korea's financial regulator on Monday took the first administrative step toward ordering U.S. private buyout firm Lone Star Funds to sell the bulk of its controlling stake in Korea Exchange Bank (KEB).

The Financial Services Commission (FSC) said in an e-mailed statement that it sent an early notification to Lone Star ahead of requiring the fund to meet legal requirements as the major shareholder of the fifth-largest lender in South Korea.

Lone Star is currently the biggest shareholder of the No. 5 lender, holding a 51.02 percent stake. But following a recent guilty verdict by a Seoul court, the U.S. private fund is expected to be stripped of its major shareholder status.

Under local banking law, an executive or corporate entity that has been convicted of violating the law over the last five years is banned from owning over a 10 percent stake in a lender.

If Lone Star fails to meet the requirements as a major shareholder, it would be requested to sell a 41.02 percent stake in KEB.

The FSC move comes after the U.S. private equity fund decided not to appeal against the Seoul High Court's Oct. 6 verdict that found Lone Star guilty of stock manipulation charges, which raised hopes on the stalled KEB sale.

Lone Star's 4.41 trillion won ($3.87 billion) deal to sell its stake to No. 4 banking group Hana Financial Group Inc. has been in legal limbo since the FSC indefinitely delayed approval, citing the lawsuit over Lone Star's stock manipulation charges in its 2003 purchase of a KEB credit card unit.

Despite the regulatory procedures needed ahead of the FSC's stake sale order, the financial regulator is largely expected to request Lone Star to reduce its stake in KEB, given its guilty verdict.

If the FSC orders Lone Star to sell its KEB stake, the U.S. buyout fund will succeed in making an exit from South Korea after two botched attempts. Its previous deals with Kookmin Bank in 2006 and HSBC in 2008 failed due to regulatory issues and the global financial crisis, respectively.