South Korea to accelerate insolvent financial firm resolution process

South Korean financial authorities are moving to implement a ‘rapid resolution system’ designed to prevent the contagion of insolvency from individual financial institutions to the broader market. The Financial Services Commission announced a plan to reduce the time required to resolve failing financial firms from approximately 150 days to just 3 to 4 days, including weekends.

Under the proposed system, certain procedures such as shareholder meetings, competitive bidding, and prior notices may be bypassed during emergencies where a firm’s instability threatens systemic stability. The measure applies to banks, insurance companies, securities firms, savings banks, and financial holding companies eligible for support from the Deposit Insurance Fund. Major entities such as KB Kookmin, Shinhan, Hana, and Woori banks, along with large insurers like Samsung Life and Hanwha Life, fall within the scope. However, specialized entities like NH Nonghyup Bank, Suhyup Bank, and credit card companies are excluded.

To protect the rights of shareholders and creditors, the authorities will implement the ‘Net Capital Worth Obligation Principle’ (NCWOL). This ensures that if losses incurred through the rapid resolution process exceed those of standard liquidation or bankruptcy procedures, the difference will be compensated using the Deposit Insurance Fund. The Financial Services Commission plans to announce the legislative notice for the necessary amendments to the Act on Structural Improvement of the Financial Industry and the Depositor Protection Act between early next month and mid-December.