Bank of England Imposes £57 Million Fine on HSBC for Deposit Protection Failings

HSBC faces a £57.4 million fine from UK financial regulators, marking the second-largest penalty imposed by the Bank of England’s Prudential Regulation Authority (PRA). The fine stems from what the PRA describes as “serious failings” over a seven-year period, where HSBC failed to appropriately identify customer deposits eligible for protection under the Financial Services Compensation Scheme (FSCS) between 2015 and 2022.

The Financial Services Compensation Scheme mandates that banks establish systems and controls to aid regulators in identifying customers eligible for up to £85,000 in protection in the event of a bank failure. The PRA stated that HSBC’s errors were of such magnitude that they substantially compromised the bank’s readiness for resolution. Additionally, the bank was deemed to have failed in its duty of openness and cooperation by not promptly alerting the regulator to issues related to the misclassification of accounts as “eligible” for FSCS protection.

Sam Woods, CEO of the PRA, highlighted the gravity of the case, emphasizing that the failings strike at the core of the PRA’s safety and soundness objective. HSBC’s subsidiary fell significantly short of its obligations and failed to timely disclose its shortcomings to the regulatory body.

The £57.4 million fine was subject to a 45% reduction due to HSBC’s cooperation in the investigation. This penalty ranks as the PRA’s second-largest, following the £87 million fine imposed on Credit Suisse in July 2022 for substantial failures in risk management and governance linked to its exposure to the collapsed hedge fund Archegos Capital.

Among the numerous lapses outlined by the regulator, HSBC incorrectly designated 99% of eligible beneficiary deposits at its non-ringfenced UK bank as “ineligible” for consumer protection. The bank also provided the PRA with incorrect confirmation that its systems met specific scheme requirements, failing to ensure that a senior manager was responsible for these processes. Moreover, HSBC neglected to produce finalized versions of annual reports, required for board approval and confirming compliance with deposit scheme requirements.

HSBC responded to the PRA’s findings in a statement, expressing satisfaction at resolving the matter. The bank acknowledged the PRA’s recognition of its cooperation during the investigation and its commitment to addressing the identified issues while emphasizing its continued focus on customer service.