HSBC Incurs £57.4m Penalty for Lapses in Safeguarding Customer Deposits

HSBC Incurs £57.4m Penalty for Lapses in Safeguarding Customer Deposits

Introduction HSBC has incurred a hefty fine of £57.4m from the Bank of England, attributed to significant shortcomings in its customer deposit protection protocols. The Bank’s Prudential Regulation Authority (PRA) pinpointed HSBC’s failure in precisely identifying deposits that should have been covered under Britain’s Financial Services Compensation Scheme (FSCS), ensuring protection up to £85,000 per customer.

How HSBC’s Oversight Impacted Deposit Protection?

This oversight by HSBC led to a substantial penalty, marking it as the second-largest imposed by the regulator, reflecting the severity of the bank’s compliance failures. The discrepancies were noted between 2015 and 2022, during which the bank was expected to maintain robust systems and controls for accurate financial information recording, crucial for FSCS’s effective operation in case of a bank’s failure.

What the Regulatory Authority Revealed?

The PRA’s investigation revealed that one of HSBC’s subsidiaries, HSBC Bank, erroneously marked 99% of its deposits eligible for FSCS protection as ineligible. Further complicating matters, the bank provided misleading evidence of compliance with deposit protection rules. The PRA highlighted these lapses as significantly undermining the bank’s readiness for potential restructuring, also noting the bank’s lack of transparency and cooperation over an approximately 15-month period regarding the identified issues.

How HSBC Responded to the Regulatory Scrutiny?

Despite the gravity of the failings, the PRA acknowledged that the breaches were not perceived as intentional or reckless. HSBC’s cooperative stance throughout the investigation and early admission of the rule breaches led to a reduced fine, which could have escalated to £96.5m.

The bank expressed its commitment to rectify the issues and focus on serving its customers, acknowledging the PRA’s recognition of its efforts in resolving the shortcomings. This incident marks the second largest fine by the PRA, following a £87m penalty imposed on Credit Suisse in July 2023.