UK Prudential Regulation Authority Fines HSBC $72.8 Million for Failure in Depositors Protection in the Event of Firm’s Failure, Failed to Assign Clear Ownership of Processes & Wrongly Marking 99% of Eligible Beneficiary Deposits as Ineligible for Protection
31st January 2024 | Hong Kong
The UK Prudential Regulation Authority (PRA) has fined HSBC $72.8 million (£57,417,500) for failure in depositors protection in the event of firm’s failure, including failing to assign clear ownership of processes and wrongly marking 99% of eligible beneficiary deposits as ineligible for protection. UK Prudential Regulation Authority: “The PRA has fined HSBC Bank plc (HBEU) and HSBC UK Bank plc (HBUK) (together, the Firms) £57,417,500 for historic depositor protection failings arising from the Firms’ failures over many years to properly implement the requirements set out in the Depositor Protection Rules. These included the failure to accurately identify deposits that were eligible for Financial Services Compensation Scheme (FSCS) protection. The failings occurred for HBEU between 2015 and 2022, and for HBUK between 2018 and 2021. This fine, the second highest imposed by the PRA, reflects the seriousness of the failings. The Depositor Protection Rules require firms to put in place adequate systems and controls, and governance, to ensure the integrity of critical information which the FSCS relies upon to make prompt payments to depositors in the event of a firm failure. HBEU’s depositor protection failings were so significant the PRA determined that it had materially undermined the firm’s readiness for resolution. HBEU also failed to be duly open and cooperative with the PRA in not alerting the PRA over an approximately 15-month period about problems identified in the incorrect marking of accounts as “eligible” for FSCS protection. This was clearly information which the PRA would expect firms to share fully and in a timely way.” More info below:
“ UK Prudential Regulation Authority Fines HSBC $72.8 Million for Failure in Depositors Protection in the Event of Firm’s Failure, Failed to Assign Clear Ownership of Processes & Wrongly Marking 99% of Eligible Beneficiary Deposits as Ineligible for Protection “
Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA: “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. HBEU 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.”
UK Prudential Regulation Authority Fines HSBC $72.8 Million for Failure in Depositors Protection in the Event of Firm’s Failure
30th January 2024 – The PRA has fined HSBC Bank plc (HBEU) and HSBC UK Bank plc (HBUK) (together, the Firms) £57,417,500 for historic depositor protection failings arising from the Firms’ failures over many years to properly implement the requirements set out in the Depositor Protection Rules. These included the failure to accurately identify deposits that were eligible for Financial Services Compensation Scheme (FSCS) protection. The failings occurred for HBEU between 2015 and 2022, and for HBUK between 2018 and 2021. This fine, the second highest imposed by the PRA, reflects the seriousness of the failings.
HSBC Fine
The Depositor Protection Rules require firms to put in place adequate systems and controls, and governance, to ensure the integrity of critical information which the FSCS relies upon to make prompt payments to depositors in the event of a firm failure. HBEU’s depositor protection failings were so significant the PRA determined that it had materially undermined the firm’s readiness for resolution.
HBEU also failed to be duly open and cooperative with the PRA in not alerting the PRA over an approximately 15-month period about problems identified in the incorrect marking of accounts as “eligible” for FSCS protection. This was clearly information which the PRA would expect firms to share fully and in a timely way.
This meant the Firms breached Fundamental Rules 2 and 6, as well as Depositor Protection Rules 11, 12 and 14. HBEU was also found to have breached Depositor Protection Rule 50, and Fundamental Rules 7 and 8. This is the first PRA enforcement action in relation to Fundamental Rule 8, which states that firm must prepare for resolution so, if the need arises, it can be resolved in an orderly manner with a minimum disruption of critical services.
The Firms’ failings included:
- The failure to assign clear ownership for the processes required under the Depositor Protection Rules; and
- The failure to ensure that a senior manager, under the Senior Managers and Certification Regime, was allocated responsibility for these processes and the integrity of the information required under the Depositor Protection Rules.
HBEU’s failings further included:
- Incorrectly marking 99% of its eligible beneficiary deposits as ‘ineligible’ for FSCS protection;
- Providing an incorrect attestation to the PRA confirming its systems satisfied certain requirements of the Depositor Protection Rules; and
- Failing to produce finalised versions of annual reports required to be signed by its board of directors that confirmed compliance with the requirements of the Depositor Protection Rules for multiple years.
The Firms’ cooperation throughout the investigation, including the early admission of certain rule breaches, resulted in a 15% reduction to the penalty. The Firms agreed to resolve the matter and therefore qualified for a further 30% reduction in the fine. Without these reductions, the fine imposed by the PRA would have been £96.5m. The PRA does not consider that the Firms’ breaches were deliberate or reckless.
The Bank of England publishes new enforcement policies
Following a period of consultation, the Bank of England (Bank) and the PRA today have also published Policy Statement PS1/24, which sets out the revised approach to enforcement for both PRA firms and financial market infrastructure firms. This includes revisions to the procedures of the Bank’s Enforcement Decision Making Committee (EDMC). The revised policies set out a new path for early cooperation and greater incentives for early admissions with the aim of speeding up investigations in appropriate cases. PS1/24 further sets out the PRA’s policies and procedures for making supervisory and non-enforcement statutory notice decisions. Today’s fine imposed by the PRA on HBEU and HBUK was under the PRA’s pre-existing penalty policy.
The Bank expects to consult on further amendments to its enforcement policies in 2024, reflecting the additional powers granted under the Financial Services and Markets Act 2023.
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