London (Parliament Politics Magazine) – The Bank of England (BoE) has fined The Hong Kong and Shanghai Banking Corporation Limited (HSBC) £ 57.4 million for failing to save billions of deposits for hundreds of clients in a “serious” obedience breach that endured for seven years. On Tuesday, the BoE’s Prudential Regulation Authority stated that it had charged the second-largest penalty after HSBC failed to accurately identify customer deposits qualified for protection under the Financial Services Compensation Scheme between 2015 and 2022.
Under the system, banks are directed to ensure they have procedures and controls in place to enable regulators to identify customers qualified for up to £85,000 in security within seven days of a bank failing. The regulator expressed that the bank’s mistakes were “so significant” that it contained “materially undermined the firm’s readiness for resolution”. HSBC had also “failed to be duly open and co-operative” with the watchdog in not cautioning it for about 15 months about issues it had identified in the wrong marking of accounts as “eligible” for FSCS protection.
Sam Woods, chief executive of the PRA, stated: “The serious failings, in this case, go to the heart of the PRA’s safety and soundness objective . . . [HSBC’s subsidiary] fell far short of its obligations in this area, and failed to disclose its failings to us promptly.”
The penalty is a blow for chief executive Noel Quinn, who has been revamping the bank’s reputation and compliance policies after a series of crashes in the years after the financial crisis, notably when it was fined $1.9bn for supporting Mexican drug cartels launder money. The PRA penalty pursues another from the Financial Conduct Authority, which in December 2021 fined HSBC £64mn for “serious weaknesses” in its anti-money laundering rules.
The fine was decreased by 45 per cent because HSBC collaborated in the investigation. It was the PRA’s second-largest fine after an £87mn fine imposed on Credit Suisse last July for “significant failures in risk management and governance” connected to its exposure to tumbled hedge fund Archegos Capital.
HSBC’s declines trace their origins back to the composition of its UK ringfenced bank to concede with rules demanding the formal separation of consumer and investment banking assets. The separation left too few staff members in the non-ringfenced bank with the required expertise, and no senior director was given an obligation for the issue. It resulted in years of rushed and wrong attestations to the regulator that were withered internally as problematic. The PRA expressed in its report.
When it could not deliver the PRA with the correct details about a particular client in 2019, HSBC undertook an internal investigation. By 2021, it discovered that it had wrongly classed £4.5 billion of deposits for 242 clients as ineligible for Financial Services Compensation Scheme (FSCS) protection, and another £2 billion of deposits for 120 customers were wrongly excluded from its regulatory report.
The FSCS notice for HSBC’s non-ringfenced bank only contained £2mn of deposits for 150 clients, so 99% of qualified and 70% of customers had been wrongly excluded from the scheme. HSBC had also been underpaying its payments to the FSCS. Among several other failings, HSBC also failed to deliver finalised versions of annual reports that needed to be signed by its board of directors to confirm compliance with the provisions of the deposit scheme and provided an incorrect validation to the PRA that its systems met specific requirements of the scheme, the regulator stated.
In a remark, HSBC stated it was pleased to resolve the matter: “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.” As a result, HSBC declined to remark on whether any employees had been disciplined or removed from their roles.