HSBC Faces Penalty for Failing to Protect Customer Deposits
HSBC Holdings plc HSBC has been fined £57.4 million by the Bank of England (“BoE”) for “serious failings” over its measures to protect customer deposits between 2015 and 2022. The fine is the second-biggest fine ever imposed by the regulator, which reflects the seriousness of the failings.
The BoE’s Prudential Regulation Authority (“PRA”) said that HSBC failed to accurately identify deposits eligible for Britain’s Financial Services Compensation Scheme (“FSCS”), which protects up to £85,000 in customer bank accounts.
Notably, under the depositor protection rules, banks are required to have systems and controls in place in order to make sure that financial information is logged correctly. The information is needed if the FSCS has to make payments to customers in the event of a bank failure.
It was found that HSBC’s subsidiary, HSBC Bank, had incorrectly marked 99% of its eligible beneficiary deposits as “ineligible” for FSCS protection.
Also, HSBC Bank provided incorrect evidence that its systems satisfied certain requirements of the deposit protection rules.
Sam Woods, the chief executive 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.”
He added that HSBC had fallen “far short of its obligations in this area, and failed to disclose its failings to us in a timely manner.”
However, the PRA said that it did not consider the bank’s breaches to be “deliberate or reckless.”
Because of HSBC’s cooperation throughout the investigation, the fine was reduced. Originally, HSBC was supposed to be hit by a penalty of £96.5 million.
A spokesman for HSBC said, “HSBC is pleased to have resolved this historic matter, which relates to the bank’s compliance with certain parts of the PRA’s Depositor Protection Rules.”
The bank added, “The PRA’s final notice recognises the Bank’s cooperation with the investigation, as well as our efforts to fully resolve these issues. We continue to remain focused on serving our customers.”
Notably, this is not the first time that HSBC has been fined over failings within its banking operations.
In 2021, the U.K.’s financial regulator had fined HSBC with £63.9 million for “unacceptable failings” of the bank’s anti-money laundering systems.
In 2012, HSBC paid $1.9 billion after an investigation by the U.S. Department of Justice for failing to prevent money laundering by Mexican drug cartels.
Over the past three months, shares of HSBC have gained 6.2%, underperforming the industry’s rise of 10.6%.
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Currently, HSBC carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Legal Issues Faced by Finance Companies in the United States
In November 2023, Morgan Stanley MS agreed on a $6.5-million settlement with six state attorneys general, led by New York attorney general Letitia James. The firm’s U.S. wealth management business, earlier known as Morgan Stanley Smith Barney LLC, was charged with failing to protect customers’ personal information while shutting down two data centers in 2016.
MS was accused of negligence in properly decommissioning computers that contained unencrypted customer data.
According to the agreement released by attorney general James, “Morgan Stanley failed to decommission its computers and erase unencrypted data in certain computer devices that were later auctioned while still containing consumers’ personal information, including data belonging to 1.1 million New Yorkers.”
Likewise, Washington Trust Bancorp, Inc.’s WASH wholly-owned subsidiary, The Washington Trust Company, agreed on a settlement with the U.S. Department of Justice to resolve allegations that Washington Trust violated fair lending laws in Rhode Island between 2016 and 2021.
Washington Trust was required to provide $7 million in mortgage loan subsidies for mortgage, home improvement or refinance loans in specific census tracts in Rhode Island over five years.
Also, the company had to commit $2 million for focused community outreach and marketing efforts.
The settlement did not include any civil monetary penalties.
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