Customer Deposit Fiasco Costs HSBC a $73 Million Fine

HSBC has been issued a penalty of £57.4 million ($73 million) by the UK's Prudential Regulation Authority (PRA) over "serious failings" in protecting some customer deposits as required under British banking rules.

HSBC fined $73 million by UK regulator for deposit protection failures

The fine, the second-largest ever imposed by the PRA, relates to issues at HSBC Bank plc between 2015-2022 and HSBC UK Bank plc from 2018-2021, where the banks failed to accurately identify and mark deposits eligible for protection by the UK's Financial Services Compensation Scheme (FSCS).

Specifically, the PRA found one HSBC unit had incorrectly marked 99% of eligible beneficiary deposits as ineligible. As a result, the regulator determined HSBC's shortcomings would have "materially undermined" efforts to resolve and unwind the banks in an orderly way.

"It is vital that all banks comply fully with our requirements around preparedness for resolution," commented Sam Woods, the Deputy Governor for Prudential Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term and the Chief Executive Officer of the PRA. "HBEU fell far short of its obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term in this area, and failed to disclose its failings to us in a timely manner."

HSBC cooperated during the PRA's investigation and committed to resolving the identified issues. The initial proposed fine of £96.5 million was reduced 40% to £57.4 million as a result.

The Prudential Regulation Authority (PRA) fines HSBC £57.4m for historic failures regarding deposit protection account marking and delays informing the PRA.

Read more here: https://t.co/S4jgRVsREf

— Bank of England (@bankofengland) January 30, 2024

Deposit Protection up to £85K

The failings relate to UK requirements for banks to have systems and controls in place to identify FSCS-protected deposits of up to £85,000 per customer. This is intended to enable rapid payouts to eligible customers should a bank fail.

This protection applies to banks, building societies, and credit unions in the UK. The £85,000 limit is per eligible depositor per authorized institution. It does not apply per account. For joint accounts, the limit is £170,000 covering both account holders. The £85,000 limit refers to the total amount held across all accounts at that institution.

So if you have money deposited at multiple banks within the same banking group, your deposits are still only covered up to £85,000 in total.

Long List of HSBC's Fines

This is another multi-million fine for HSBC, following a payment of $45 million made in May 2023 in the United States for "manipulative and deceptive trading" practices allegedly committed between 2012 and 2015. However, these are not the largest fines in HSBC's history.

For instance, in 2018, the institution was fined $101.5 million as part of a settlement with the U.S. Department of Justice related to investigations into currency rate manipulations. In 2017, HSBC had to pay $175 million for "unsafe forex trading." The UK lender lacked sufficient oversight and controls over its FX traders, who were reportedly discussing trading positions with competitors through electronic chatrooms, according to the Board.

One of the largest fines paid by the bank was in 2015, when it agreed to pay $285 million in a settlement related to a case of financial market manipulation.

The Bank of England Publishes New Enforcement Policies

Following consultations, the Bank of England and the PRA have released a new policy statement today (on Tuesday), detailing an updated approach to enforcement for both PRA-regulated firms and financial market infrastructure entities. This includes modifications to the operational procedures of the Bank's Enforcement Decision Making Committee.

The updated policies introduce a framework encouraging early collaboration and providing more incentives for prompt admissions aimed at expediting investigations where suitable. Additionally, new policy outlines the PRA's approaches and methods for issuing supervisory and non-enforcement statutory notices. The recent penalty imposed by the PRA on HBEU and HBUK was based on the PRA's existing penalty policy.

The Bank of England and the Prudential Regulation Authority (PRA) have published their policy statement PS1/24 setting out revisions to their enforcement policies and procedures.

Read the new PRA policies here: https://t.co/KxzdSfqqEj pic.twitter.com/GtjPjn0q23

— Bank of England (@bankofengland) January 30, 2024

In 2024, the Bank plans to propose further revisions to its enforcement policies, in line with the new powers it received under the Financial Services and Markets Act 2023.

Participate in Our Fraud Survey: Your Opinion Matters!

We invite you to participate in our joint survey conducted by FXStreet and Finance Magnates Group, which explores prevalent online financial fraud types, platforms used for fraudulent activities, effectiveness of countermeasures, and challenges faced by companies in tackling such fraud. Your valuable insights will help inform future strategies and resource allocation in combating financial fraud.

Social Media Scams: Help Shape the Fight with Your 2024 Survey Participation