- HSBC incurs a £57.4 million fine from the Bank of England for substantial lapses in safeguarding customer deposits under the Financial Services Compensation Scheme.
- The second-highest penalty ever imposed by the regulator highlights serious failings in HSBC’s compliance with depositor protection rules between 2015 and 2022.
HSBC faces a hefty £57.4 million fine from the Bank of England for “serious failings” in accurately identifying customer deposits eligible for protection under Britain’s Financial Services Compensation Scheme (FSCS). The fine, the second-highest ever imposed by the regulator, underscores the gravity of the bank’s lapses, which occurred between 2015 and 2022. The failure to comply with depositor protection rules and the subsequent lack of readiness for restructuring have raised concerns over HSBC’s adherence to safety and soundness objectives.
Chronicle of Failures
The Bank of England’s Prudential Regulation Authority (PRA) identified significant flaws in HSBC’s handling of customer deposits during the specified period. One of its subsidiaries, HSBC Bank, inaccurately labeled 99% of eligible beneficiary deposits as “ineligible” for FSCS protection. Furthermore, the bank provided incorrect evidence regarding the compliance of its systems with deposit protection rules, compromising its readiness for potential financial instability.
Material Impact on Readiness
The PRA deemed the failings “so significant” that they materially undermined HSBC’s readiness for any restructuring required during the period. This critical lapse raised questions about the bank’s ability to safeguard customer interests in the event of a collapse. Additionally, HSBC’s failure to promptly disclose these issues to the PRA over a 15-month period was viewed as a breach of openness and cooperation.
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PRA’s Perspective
PRA Chief Executive Sam Woods emphasized the gravity of HSBC’s shortcomings, stating that the serious failings went to the core of the PRA’s safety and soundness objective. Woods highlighted the importance of banks complying fully with requirements related to preparedness for resolution and criticized HSBC for falling “far short of its obligations” in this crucial area.
Penalty Reduction and Cooperation
Despite the severity of the breaches, the PRA acknowledged HSBC’s cooperation throughout the investigation, which included an early admission of rule violations. This cooperation resulted in a reduction of the penalty. Without these reductions, HSBC would have faced a more substantial fine of £96.5 million. The bank, in response, expressed its commitment to serving customers and acknowledged the PRA’s recognition of its cooperation in resolving the issues.
HSBC’s History of Regulatory Challenges
This isn’t the first time HSBC has faced regulatory scrutiny for operational failings. In 2021, the bank was fined £63.9 million by the Financial Conduct Authority for “unacceptable failings” in its anti-money laundering systems. The recurrent weaknesses in financial crime safeguards had been previously highlighted. In 2012, HSBC paid $1.9 billion in a settlement with the US Department of Justice over its failure to prevent money laundering by Mexican drug cartels, further tarnishing the bank’s regulatory track record.
Conclusion
HSBC’s substantial fine from the Bank of England reflects a series of serious failings in handling customer deposits, raising concerns about its adherence to regulatory standards and its ability to ensure depositor protection. As the bank navigates the aftermath of this significant penalty, it faces heightened scrutiny over its commitment to compliance and the effectiveness of its internal controls in safeguarding financial stability.
