The move comes after a number of lenders improperly outsourced trading operations that involved their funds in Korea.
Sanctions have already been imposed on HSBC Holdings and Credit Agricole - a French retail bank that has 11,500 branches worldwide - Financial Supervisory Service (FSS) deputy governor Kim Yung-Dae revealed.
In a statement, the FSS noted: "Foreign banking branches are considered to have a great effect in increasing the volatility of capital flows in and out of the market."
Mr Yung-Dae explained that an announcement due in June or July is likely to see another as-yet unidentified bank from Europe sanctioned, with concerns growing that rapid foreign capital flows could pose potential risks.
The FSS is to begin inspecting 15 foreign banks in Korea every year going forward.
By Gary Cooper