PRA Imposes £57.4 Million Penalty on HSBC Units for Deposit Protection Failures

The Bank of England’s Prudential Regulation Authority (PRA) has issued a substantial penalty of £57.4 million ($73 million) on two HSBC units, namely HSBC Bank (HBEU) and HSBC U.K. Bank, over historical lapses in deposit protection identification and notification. This development was disclosed in a press release by the PRA, emphasizing that the banks failed to implement the Depositor Protection Rules (DPR) between 2015 and 2022, leading to improper identification of deposits eligible for the Financial Services Compensation Scheme (FSCS).

The PRA's findings pointed to a lack of adequate systems, controls, and governance during the mentioned period, resulting in critical information integrity issues. HBEU further compromised its readiness for resolution and failed to promptly notify the PRA of issues related to incorrectly marked accounts as "eligible" for FSCS protection. The failure to assign clear ownership for DPR processes, lack of senior management oversight, and inaccurately marking 99 percent of eligible beneficiary deposits as "ineligible" were highlighted as aggravating factors.

In its statement, the PRA mentioned that the penalty, the second-largest it has imposed, was accompanied by a 30 percent discount for the banks' cooperation throughout the investigation, early admission of wrongdoing, and the agreement to resolve the matter. The PRA also outlined the remediation program within the settlement, requiring enhancements to core systems, single customer view (SCV) logic, and strengthening the control environment within front-line and operations teams.

According to the final notice, the remediation program aims to ensure that an accurate SCV file minimizes the adverse effects of firm failure on the stability of the financial system. Additionally, the PRA noted that mitigating factors included the provision of detailed internal audit reports, limited waiver of privilege, and targeted corrections.

An HSBC spokesperson expressed satisfaction with resolving the historic matter, stating, "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 spokesperson highlighted the bank's cooperation with the investigation, efforts to resolve the issues fully, and the continued focus on serving customers.

This regulatory action underscores the importance of compliance with deposit protection regulations and highlights the need for robust systems and controls to ensure the integrity of critical information for financial institutions operating in the U.K.

By fLEXI tEAM