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HSBC fined £57m for major deposit protection failures

By Nithya Bose in UK Employment news, posted January 31, 2024

HSBC is facing a £57 million from the Bank of England’s financial stability arm for failing to protect customer deposits.

This penalty is the second-largest ever imposed by the Prudential Regulation Authority (PRA).

The fine was levied against two UK subsidiaries of HSBC Holdings, which are considered critical to the UK financial system.

The bank's infractions spanned from 2015 to 2022, during which it did not properly implement depositor protection rules.

The investigation found HSBC failed to correctly identify deposits eligible for Financial Services Compensation Scheme (FSCS) protection.

It’s a crucial safety net that ensures deposits in the event of a bank's collapse.

The PRA said HSBC lacked “adequate systems and controls, and governance” essential to enable FSCS to make prompt payments to depositors in the case of a banking failure.

It added that the failings had “materially undermined the firm’s readiness for resolution”.

HSBC did not promptly inform the regulator of issues in incorrectly marked accounts eligible for FSCS protection, violating the rules for over 15 months.

“HSBC Bank plc fell far short of its obligations in this area, and failed to disclose its failings to us in a timely manner"

Another breach involved the bank's non-compliance with regulations mandating preparation for resolution with minimal disruption of critical services during a banking collapse.

Sam Woods, the PRA chief executive, 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.

“HSBC Bank plc 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.”

HSBC's cooperation with the regulatory investigation led to a reduced fine, which otherwise would have amounted to £96.5 million.

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The bank was also criticised for not assigning a senior manager to oversee the resolution processes necessary in the event of a banking failure.

HSBC Bank plc, the non-ringfenced part of the group, inaccurately marked 99 percent of its eligible deposits as "ineligible" for FSCS protection.

HSBC said it was “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 cooperation with the investigation, as well as our efforts to fully resolve these issues. We continue to remain focused on serving our customers.”

Last year, the body hit Credit Suisse with an £87 million fine.

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