HSBC fined US$73 million by UK watchdog Prudential Regulation Authority for incorrectly excluding customers’ cash from protection scheme

The fine, PRA’s second highest, ‘reflects the seriousness of the failings’ that occurred between 2015 and 2022

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: PRA

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An HSBC branch in London. The size of the PRA 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. Photo: EPA-EFE

Published: 8:57pm, 30 Jan 2024

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

Imposing the penalty, the Prudential Regulation Authority (PRA) said on Tuesday that the lender failed to properly comply with deposit protection rules under the Financial Services Compensation Scheme (FSCS) 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 last year over its involvement in the collapse of Archegos Capital Management. Though it is 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 US$1.92 billion to settle US money laundering investigations.

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’s annual fees to the programme.