HSBC fined £57 million by UK watchdog for mismarked deposits

HSBC Holdings Plc was fined £57.4 million ($73 million) by the UK for incorrectly excluding billions of pounds of its customers’ money from a depositor protection program.

Imposing the penalty, the Prudential Regulation Authority said Tuesday that the lender failed to properly comply with deposit protection rules under the Financial Services Compensation Scheme over many years. The fine, PRA’s second highest, “reflects the seriousness of the failings” that occurred between 2015 and 2022, according to a statement from the arm of the Bank of England.

The depositor protection rules require firms to put in place adequate systems, controls and governance to ensure prompt payments to depositors in the event of a firm’s failure. Client deposits of as much as £85,000 are insured and fully repaid in the event a bank fails. The regulator said HSBC failed to accurately identify deposits that qualified for FSCS protection.

The size of the fine is second only to the £87 million levied on Credit Suisse in July 2023 over its involvement in the collapse of Archegos Capital Management. Though it’s large by PRA’s standards, the amount is relatively small compared to many seen in the US in the last decade. In 2012, HSBC itself agreed to pay $1.92 billion to settle US probes of money laundering.

HSBC’s shares swung between losses and gains on Tuesday in London and were up 0.1% as of 10:06 a.m. local time.

The PRA’s report outlined a series of errors related to the implementation of the UK’s ring-fencing rules that led to the situation. Staff were unclear about what to do and ended up providing incorrect information to the authorities, the PRA said in a 53-page report detailing what had gone wrong.

The failings included £4.5 billion of deposits at the bank’s non-UK unit being incorrectly marked as ineligible for protection and a further £2 billion of deposits being wrongly excluded from data sent to the PRA. The unit’s FSCS report at the time only included £2 million of deposits, meaning it would have resulted in an under-calculation of HSBC Bank Plc’s annual fees to the program.

In its findings, the regulator also said that in establishing a British ring-fenced bank, HSBC had transferred a number of specialists in the area of depositor protection to the UK, leaving its European bank short of experts.

Internal Group

The PRA said it first reached out to HSBC in October 2019 to confirm how it was treating a particular client’s deposits in terms of their eligibility for protection within the FSCS. The lender ultimately established an internal working group to investigate whether it was correctly marking deposits that would be eligible for the program.

While HSBC soon became aware of the potential scale of its issue with mismarking deposits, it didn’t notify the PRA of the matter until April 2021, according to a separate notice filed on Tuesday.

HSBC “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,” the PRA said in its statement. “This was clearly information which the PRA would expect firms to share fully and in a timely way.”

The original fine was £96.5 million but HSBC’s cooperation, early admission of certain rule breaches and agreement to a settlement meant it qualified for a reduction, according to the PRA.

“HSBC is pleased to have resolved this matter,” a spokesperson said in an emailed statement. “The PRA’s final notice recognizes the bank’s co-operation with the investigation, as well as our efforts to fully resolve these issues.”