HSBC suffered another serious blow to its reputation today when it was whacked with one of the heaviest fines ever handed out by the City regulator.
The giant bank – a global lender with its HQ in London – was fined £57.4 million for “serious failings” in its systems to protect customer deposits.
That is topped only by the £87 million punishment handed out to Credit Suisse last summer by the Bank of England’s Prudential Regulation Authority,
HSBC was also hit with a $1.9 billion fine by US authorities in 2012 for serving as a conduit for Mexican cocaine money laundering cartels, perhaps the most egregious punishment meted out to any bank, ever.
There was a serious danger then that it might lose its US banking licence, so lax were its controls felt to be.
It pledged then that it had changed its systems.
Today the PRA said HSBC had, between 2015 and 2022, failed to protect customer deposits.
Under the City compensation scheme, deposits are guaranteed up to £85,000, a measure brought in after the 2008 financial crisis to ensure public confidence in the banking system.
The PRA said HSBC had incorrectly marked 99% of its eligible beneficiary deposits as “ineligible” for protection under the Financial Services Compensation Scheme (FSCS).
Sam Woods, chief executive of the PRA, said the bank’s failings went “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. “HSBC 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 fine, while serious, is still minor compared to profits of £17 billion for the first half of last year alone. Shareholders have enjoyed many billion in dividend payouts and share buybacks.
The bank has been under pressure from its largest shareholder, Ping An, which wants the bank to be broken up.
HSBC said only that it is “pleased to have resolved this historic matter” and it continues “to remain focused on serving our customers.”
The regulator was not so sanguine, noting that the bank’s failings were “so significant” that it had “materially undermined the firm’s readiness for resolution”.
HSBC had also “failed to be duly open and co-operative” with the watchdog in not alerting it for about 15 months about problems it had identified in the incorrect marking of accounts as “eligible” for FSCS protection.
The shares were today steady at 618p, which values the bank at £119 billion. HSBC chief executive Noel Quinn was paid £5.6 million last year. He has shares in HSBC worth towards £30 million.
Critics of the bank, including Ping An, think HSBC is too large to be managed efficiently.
HSBC’s fine was reduced from an initial £96.5 million for co-operation with the investigation, early admission of rule breaches and agreeing to resolve the matter, according to the PRA.
The PRA said HSBC Bank’s depositor protection failings were “so significant, the PRA determined that it had materially undermined the firm’s readiness for resolution”.
The regulator said it did not think HSBC’s breaches were “deliberate or reckless”.
Yet the bank had failed to produce proper reports signed by the directors that showed compliance with the compensation scheme.
Credit Suisse’s fine last year was for significant failures in risk management and governance” linked to collapsed hedge fund Archegos Capital.
