Korea’s Financial Services Commission (FSC) on 29 October announced a prompt resolution regime for distressed financial companies, to be written into amendments to the Act on the Structural Improvement of the Financial Industry and the Depositor Protection Act. The FSC says the regime would cut a resolution that now takes about 150 days to three or four days, weekend included. The FSC will publish the draft bills for comment from 2 November to 14 December. In RegMemo’s analysis, the proposal gives Korea a resolution toolkit close to the Financial Stability Board’s international standard for the first time, and the cost of that speed falls on shareholders and creditors, whose protection moves to compensation after the event.
The regime covers firms that take insured deposits
The prompt resolution process would apply only to institutions whose liabilities can be covered by deposit insurance: banks, excluding Nonghyup Bank and Suhyup Bank, insurers other than reinsurers, securities firms, savings banks and financial holding companies. The English summary on the FSC press release page gives the reason for leaving out credit card and other specialised credit companies, some asset managers and trust businesses: they take no bank-like deposits and often hold investor money with third-party custodians, so they are less exposed to a run. Nonghyup Bank, Suhyup Bank and the mutual finance sector have separate laws and their own resolution procedures, and the FSC will look at bringing them in over the medium to long term.
The trigger has three parts. The firm must be insolvent or at risk of insolvency. Its failure must be highly likely to threaten the financial system or market stability. The situation must also be urgent enough that existing tools under the Structural Improvement Act, such as prompt corrective action, would not be enough. A designation needs the votes of at least two-thirds of the FSC’s sitting members, with the Ministry of Economy and Finance, the Financial Supervisory Service (FSS), the Korea Deposit Insurance Corporation (KDIC) and the Bank of Korea (BOK) taking part in the decision.
Speed comes from switching off corporate and procurement law
The FSC would choose among tools the Structural Improvement Act already contains: suspension of business, appointment of an administrator, contract transfers, acquisition by a third party, cancellation or consolidation of shares and revocation of licences. What changes is the procedure around them. Under the proposal, a designated resolution could skip competitive bidding under the State Contracts Act, advance notice under the Administrative Procedures Act, board and shareholder approvals under the Commercial Act and merger review under the Monopoly Regulation and Fair Trade Act. The KDIC would produce a preliminary valuation of assets and liabilities within one or two days and a full valuation later.
Those four statutes account for most of the 150 days. A transfer of a failing savings bank’s deposits to a buyer now needs a tender, a shareholder vote at the seller and, depending on size, a competition filing. Removing them lets the authorities close a firm on a Friday and reopen its deposit book under new ownership on Monday. The United States did that with Silicon Valley Bank: California regulators closed the bank on 10 March 2023, and on 13 March the Federal Deposit Insurance Corporation moved all its deposits to a bridge bank that opened for business that morning.
Shareholders lose a vote and gain a compensation claim
The safeguard in the proposal is a “no creditor worse off” test. Shareholders and creditors may not lose more in a prompt resolution than they would have in an ordinary liquidation or bankruptcy. After the resolution, the authorities would calculate the liquidation counterfactual, and any shortfall would be paid from the deposit insurance fund. The FSC would report the details, reasons and results to the National Assembly’s Political Affairs Committee within six months.
The FSB resolution standard contains the same pairing: resolution powers that can be used without the consent of shareholders or creditors, and a no creditor worse off safeguard backed by compensation. Korea already has a deposit insurer and prompt corrective action powers, but the list of statutes the FSC wants to set aside shows how much of its resolution process still runs through ordinary corporate procedure.
Two parts of a full regime are missing from the summaries published so far. They do not mention a bail-in power to write down or convert bank debt, the FSB tool for absorbing losses without public money, and they do not set out how the deposit insurance fund would be refilled if compensation payments were large. The FSB’s October report on public sector backstops found that few member jurisdictions have funding arranged in advance for large banks in resolution, and Korea’s plan leaves that question with the KDIC.
Coverage of insurers and brokers goes beyond most bank regimes
The regime would also reach insurers and securities firms. For a life insurer, a transfer of policies to a bridge company over a weekend is harder to execute than a deposit transfer, because policy liabilities need actuarial valuation, and the one-to-two-day KDIC valuation will be tested hardest there. For securities firms, the test will be how quickly client accounts and open positions can be moved to another broker.
What to watch
- 2 November to 14 December 2026: public comment on the draft amendments to the Structural Improvement Act and the Depositor Protection Act.
- Review by the Regulatory Reform Committee and the Ministry of Government Legislation, then FSC, vice-ministerial and Cabinet approval before submission to the National Assembly.
- Whether the final bills add a bail-in power or rules on funding compensation from the deposit insurance fund.
- Any later decision to bring Nonghyup Bank, Suhyup Bank and mutual finance businesses into the regime.
Primary sources
- Financial Services Commission, 금융회사 신속정리제도 도입 추진 (introduction of a prompt resolution regime for financial companies, in Korean), 29 October 2026
- Financial Services Commission, FSC Proposes Rules Change to Facilitate Prompt Resolution of Distressed Financial Companies, English press releases page, 29 October 2026
- Financial Stability Board, Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2014
- Federal Deposit Insurance Corporation, FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, 13 March 2023
Related: Korea sets April 2027 end for new KORIBOR loans and lifts KOFR targets for banks
Photo (cropped): Republic of Korea, CC BY-SA 2.0 via Wikimedia Commons
