HSBC faces £70m fine over failure to protect customer deposits

The Bank of England has penalized HSBC £57.4m for “serious failings” over its measures to save customer deposits.

Background:

HSBC has been fined £70 million by the Bank’s Prudential Regulation Authority (PRA) for its failure to accurately identify customer deposits eligible for Britain’s Financial Services Compensation Scheme (FSCS). The FSCS protects customer deposits up to £85,000.

Serious Failings and Historical Matter:

The PRA identified significant failings in HSBC’s procedures, spanning the period between 2015 and 2022. The bank’s subsidiary, HSBC Bank, incorrectly categorized 99% of eligible beneficiary deposits as “ineligible” for FSCS protection. 

The regulator stated that these issues were so substantial that they undermined the bank’s readiness for potential restructuring.

Importance of Depositor Protection Rules:

Depositor protection rules mandate that banks establish accurate systems and controls to ensure proper recording of financial information. This information is crucial for the FSCS to make payments to customers in the event of a bank collapse.

Lack of Cooperation and Disclosure:

The PRA noted that HSBC failed to be sufficiently open and cooperative by not promptly disclosing identified problems over a 15-month period. The bank’s lack of disclosure hindered the PRA’s ability to address the issues in a timely manner.

Reduction in Penalty and Cooperation:

While the PRA deemed the breaches serious, it acknowledged HSBC’s cooperation throughout the investigation, including early admission of rule violations. This cooperation led to a reduction in the penalty from a potential £96.5 million.

Regulator’s Perspective:

PRA Chief Executive Sam Woods emphasized the gravity of the failings, stating that the serious lapses went to the core of the PRA’s safety and soundness objective. He stressed the importance of full compliance with regulatory requirements, particularly in preparedness for resolution.

HSBC’s Response:

HSBC expressed satisfaction at resolving the “historic matter” and stated its commitment to serving customers. The bank acknowledged the PRA’s recognition of its cooperation during the investigation.

Significance of the Fine:

The £70 million fine is the second-highest imposed by the PRA to date, underscoring the severity of the lapses in HSBC’s depositor protection procedures. The highest fine remains £87 million, imposed on Credit Suisse in July 2023.