Bank of England fines HSBC £57mn over deposit protection failings

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UK financial regulators have found HSBC £57.4mn for “serious failings” in safeguarding the deposits of some customers over a period of seven years.

The BoE’s Prudential Regulation Authority said on Tuesday that it was imposing its second-biggest fine after HSBC failed to correctly identify customer deposits eligible for protection under the Financial Services Compensation Scheme between 2015 and 2022.

Under the scheme, banks are required to ensure they have systems and controls in place to help regulators identify those customers who would be eligible for up to £85,000 in protection in the event of a bank failing.

The regulator said the bank’s mis-steps were “so significant” that it had “materially undermined the firm’s readiness for resolution”. HSBC had also “failed to be duly open and co-operative” with the watchdog in not alerting it for about 15 months about problems it had identified in the incorrect marking of accounts as “eligible” for FSCS protection.

Sam Woods, chief executive of the PRA, said: “The serious failings in this case go to the heart of the PRA’s safety and soundness objective. . .[HSBC’s subsidiary]fell far short of its obligations in this area, and failed to disclose its failings to us in a timely manner.”

The fine was reduced by 45 per cent because of HSBC’s co-operation in the investigation. It was the PRA’s second-largest penalty after an £87mn fine imposed on Credit Suisse last July for “significant failures in risk management and governance” linked to its exposure to collapsed hedge fund Archegos Capital.

Among several failings laid out by the regulator, HSBC incorrectly marked 99 per cent of eligible beneficiary deposits at its non-ringfenced UK bank as “ineligible” for consumer protection.

The bank also provided an incorrect confirmation to the PRA that its systems met certain requirements of the scheme, the regulator said, adding that HSBC had failed to ensure that a senior manager was responsible for these processes.

HSBC also failed to produce finalized versions of annual reports required to be signed by its board of directors that confirmed compliance with the requirements of the deposit scheme.

In a statement, HSBC said it was pleased to resolve the matter: “The PRA’s final notice recognizes the bank’s co-operation with the investigation, as well as our efforts to fully resolve these issues. We continue to remain focused on serving our customers.”