"The serious failings in this case go to the heart of the PRA’s safety and soundness objective."
- Sam Woods, CEO of the PRA
The PRA has fined HSBC a total of £57,417,500 for its "failures over many years" to properly implement requirements set out in the Depositor Protection Rules.
These included the failure to accurately identify deposits that were eligible for Financial Services Compensation Scheme (FSCS) protection. The Bank incorrectly marked 99% of its eligible beneficiary deposits as ‘ineligible’ for FSCS protection. The failings occurred for HSBC Bank between 2015 and 2022, and for HSBC UK between 2018 and 2021.
The PRA says fine, the second highest ever imposed by the regulator, "reflects the seriousness of the failings".
The Depositor Protection Rules require firms to put in place adequate systems and controls, and governance, to ensure the integrity of critical information which the FSCS relies upon to make prompt payments to depositors in the event of a firm failure.
The PRA says HSBC's depositor protection failings were "so significant" the PRA determined that it had materially undermined the firm’s readiness for resolution.
The investigation found that the Bank also failed to be "duly open and cooperative" with the PRA in not alerting it over a 15-month period about problems identified in the incorrect marking of accounts as eligible for FSCS protection.
Other failing included the failure to ensure that a senior manager, under the Senior Managers and Certification Regime, was allocated responsibility for these processes and the integrity of the information required under the Depositor Protection Rules.
This is the first PRA enforcement action in relation to Fundamental Rule 8, which states that firm must prepare for resolution so, if the need arises, it can be resolved in an orderly manner with a minimum disruption of critical services.
Sam Woods, deputy governor for prudential regulation and CEO of the PRA, said: “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 failures led to today’s action, including the significant fine.”
The Banks' cooperation throughout the investigation, including the early admission of certain rule breaches, resulted in a 15% reduction to the penalty. The firms also agreed to resolve the matter and therefore qualified for a further 30% reduction in the fine. Without these reductions, the fine imposed by the PRA would have been £96.5m.
A HSBC spokesperson commented: "HSBC is pleased to have resolved this historic matter, which relates to the Bank’s compliance with certain parts of the PRA’s Depositor Protection Rules. The PRA’s final notice recognises 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."
The Bank of England publishes new enforcement policies
Following a period of consultation, the Bank of England and PRA have today published a new policy statement which sets out a revised approach to enforcement for both PRA firms and financial market infrastructure firms.
The revised policies set out a new path for early cooperation and greater incentives for early admissions with the aim of speeding up investigations in appropriate cases. Today’s fine imposed by the PRA on HSBC was under the PRA’s pre-existing penalty policy.
The Bank expects to consult on further amendments to its enforcement policies in 2024, reflecting the additional powers granted under the Financial Services and Markets Act 2023.
