By Seunggyu Lim, Cynthia Kim and Jihoon Lee

SEOUL South Korea is reviewing measures to limit currency and swap traders' tenure in local dealing rooms to three to five years, starting as early as next year, two sources with direct knowledge of the matter told Reuters on Friday.

South Korean banks are under heavy pressure to reduce the risks of employee involvement in money laundering, fraud and other financial crimes following a nearly 70 billion won ($52.7 billion) embezzlement scandal by an employee at Woori Bank last year.

"Initially, those in forex and derivative divisions were going to stay immune to the staff rotation requirements but the Financial Supervisory Service is trying to apply those rules on investment bank divisions as well as FX, derivative divisions as well," one of the two sources told Reuters.

"The FSS is in the process of finalizing the measures by collecting views from the bankers' federation."

A senior official at the FSS confirmed such discussion is underway to "tighten the grip on internal matters (at banks)."

"As a rule of thumb, we're not going to make exceptions... But we need to look at opinions submitted from banks and review the matter," the official said.

Any such measures to limit tenure of staffers will broadly be applied at local banks, with less than 5% of exceptions for those in legal divisions and accounting, as they often require qualifications and licenses to perform the job, bankers with knowledge of the discussion said.

Money managers at local banks are fiercely opposing the move, as fraud checks are already rigorously done in their daily operations through middle- and back offices.

Foreign banks with local branches will not be subject to enforcement on staffer rotations.

The move could be in effect around the time the country's onshore currency market will be extended to 2 a.m. local time, or the end of London business day.

At present, the Korean won can only be directly traded with the dollar through local banks, for just six-and-a-half hours a day between 9 a.m. and 3:30 p.m.

Once the new hours take effect next year, the government will also permit traders at foreign financial institutions to participate directly in the onshore interbank market without establishing branches in the country, which could expose the dollar-won trading to heightened volatility and competition with experienced dealers abroad.

(Reporting by Cynthia Kim; Editing by Kim Coghill)