Financial regulators launched an investigation into the Korean unit of French-based BNP Paribas for engaging in allegedly unauthorized business practices, sources said Sunday.

The largest bank in France has operated an investment banking business in Seoul without regulators’ permission, multiple sources told The Korea Herald.

The banking regulations stipulate that there should be a strict firewall between the (commercial or corporate) banking and the investment banking units unless there is regulatory approval.

“The concurrent business of BNP Paribas’ Seoul branch with no authorization was recently detected by inspectors of the Financial Supervisory Service,” a financial industry source said.

Sources said ― aside from BNP Paribas ― the FSS was making inquiries into another foreign bank’s Korean unit for similar allegations.

No spokesperson for the local unit of BNP Paribas was available for comment.

Meanwhile, an executive in the financial sector who asked for anonymity argued that sometimes the state and a foreign bank did not click.

“This is a case that can happen between a state regulator and a company from two different financial systems ― or codes ― in terms of doing investment banking services here,” he said.

However, despite a series of warnings and notifications on rules from financial authorities, some foreign financial firms have breached the nation’s laws or exploited the legal loopholes over the past few years.

Morgan Stanley, Royal Bank of Scotland and DBS were admonished for unauthorized brokering or selling financial investment products. U.K.-based RBS and Germany’s Deutsche Bank were also caught for wrongful entrustment.

The Seoul branch of HSBC Holdings plc and Credit Agricole were issued a warning for violating capital market laws.

The authorities found that several foreign bank branches relocated day-to-day trading operations involving their money to regional headquarters such as Hong Kong and Singapore.

In January 2013, the FSS took disciplinary measures against three foreign-owned brokerage firms ― Deutsche Securities Korea, Credit Suisse’s Korean operation and CLSA Korea ― for breaching real-name account rules. They were also issued a caution and fines.

By Chung Joo-won (kys@heraldcorp.com)