HSBC neglected to adequately protect customer deposits from around 2015 to 2022, leading to the PRA issuing its second largest fine ever.
HSBC was served with a massive £57 million fine on Tuesday by the Bank of England’s Prudential Regulation Authority (PRA), due to the bank failing to do enough to protect customer deposits.
The PRA said HSBC did not correctly recognise which deposits fell under the Financial Services Compensation Scheme (FSCS) between 2015 and 2022. This scheme entitles customers to have up to £85,000 of their deposits protected.
About 99% of eligible customers were wrongly classified as ineligible for the purposes of the scheme. Not only this, but once the problem was identified, HSBC did also not swiftly inform the appropriate regulators about the matter.
This was the second largest fine ever imposed by the authority, pointing to the severity of the matter. The largest one , about £87 million, was to Credit Suisse in July 2023.
Initially, the fine was supposed to be even larger, at about £96.5 million. However, due to the firm cooperating with the investigation and showing willingness to fix the issue, the fine was reduced to its current level.
HSBC fails to meet safety and soundness guidelines
According to Sam Woods, the Deputy Governor for Prudential Regulation and CEO of the PRA, said, as reported by the Bank of England: “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 fell far short of its obligations in this area, and failed to disclose its failings to us in a timely manner. These failings led to today’s action, including the significant fine.”
These issues mainly took place over about seven years, between 2015 and 2022. The fine mainly impacted two UK-based subsidiaries of HSBC Holdings.
It is vital for banks to accurately record financial information, especially relating to deposit protections, since these are one of the few helpful records and guides the FSCS has in case of a bank collapse. This helps the FSCS make sure customers get paid in this situation, regardless of the bank’s own liquidity and solvency situation.
No ownership or supervision of Depositor Protection Rules processes
HSBC’s other issues, which were also cited as reasons behind the fine, included failing to take adequate ownership for the Depositor Protection Rules processes. The bank also did not make sure a senior manager was overlooking and supervising these processes and ensuring the accuracy of all information.
Furthermore, the bank wrongly confirmed to the PRA that its systems met the particular standards of the Deposit Protection Rules. For years on end, HSBC also did not submit final annual reports, with a signed confirmation of compliance from the board of directors.
HSBC highlighted that serving its customers would remain its main focus.