HSBC Fined £57.4 Million for Depositor Protection Failings
HSBC has been fined £57.4 million by the Bank of England's Prudential Regulation Authority (PRA) for what it calls "serious failings" in safeguarding customer deposits. The fine, the second-highest ever imposed by the PRA, is a result of HSBC’s failure to accurately identify deposits eligible for Britain's Financial Services Compensation Scheme (FSCS), designed to protect customer cash up to £85,000.
Banks are required to have systems and controls in place to ensure accurate logging of financial information. This information is crucial for the FSCS as it allows them to make payments to customers in the event of a bank collapsing.
The PRA's investigation revealed that HSBC Bank plc, a subsidiary of HSBC, incorrectly marked a staggering 99% of eligible beneficiary deposits as "ineligible" between 2015 and 2022. It was also found that HSBC Bank plc provided incorrect evidence stating that their systems satisfied the requirements of the deposit protection system. These depositor protection failings were deemed so significant that they materially undermined the bank's readiness for resolution, according to the PRA.
Sam Woods, Deputy Governor of the Bank of England and CEO of the PRA, emphasised the gravity of the situation, stating, "The serious failings in this case go to the heart of the PRA’s safety and soundness objective. It is vital that all banks comply fully with our requirements around preparedness for resolution. HBEU (HSBC Bank plc) fell far short of its obligations in this area, and failed to disclose its failings to us in a timely manner. These failures led to today’s action, including the significant fine."
While acknowledging the seriousness of the breaches, HSBC said that they were pleased to have resolved the matter. A spokesperson for the bank stated, "The PRA's final notice recognises the bank's cooperation with the investigation, as well as our efforts to fully resolve these issues. We continue to remain focused on serving our customers." Due to their cooperation, the fine was reduced from £96.5 million to the current £57.4 million.
This fine follows the regulatory trend of holding globally systemically important banks accountable for compliance with resolution preparedness requirements. The PRA, aiming to expedite investigations, has introduced a revised approach to enforcement, encouraging early cooperation and admissions. As HSBC faces their substantial penalty, questions surrounding the adequacy of the too-big-to-fail regulatory framework persist, echoing concerns raised by UBS's takeover of Credit Suisse in March 2023.
