South Korea's financial regulator urged financial institutions on Thursday to strengthen risk management as the Middle East crisis escalates, although the immediate impact on the domestic financial sector remains limited. The conflict involving Iran has triggered significant market volatility, but the exposure of South Korean financial institutions to the oil-rich region is relatively small, cushioning the effect. According to the Financial Services Commission (FSC), despite a surge in bond yields and a decline in the won against the U.S. dollar, these institutions have so far maintained relatively sound financial conditions and liquidity levels. The regulator noted that six domestic banks have a combined exposure of 4.3 trillion won (approximately $2.86 billion) to the Middle East, representing only 0.3% of their risk-weighted assets. However, the FSC cautioned that if the conflict persists, financial institutions need to enhance risk management, as prolonged hostilities could severely impact the real economy and the financial industry.