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.
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer
of the PRA, said:
“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.”
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.
Bank of England, Agency for Scotland
The Bank of England is the central bank of the United Kingdom. Sometimes known as the “Old Lady” of Threadneedle Street, the Bank was founded in 1694, nationalised on 1 March 1946, and in 1997 gained operational independence to set monetary policy.
