The Prudential Regulation Authority (PRA) has fined HSBC £57.42m for failings related to Financial Services Compensation protection for customers.

The PRA said that HSBC had failed to “properly implement” the requirements of the depositor protection rules.

The regulator, part of the Bank of England, said that HSBC had incorrectly marked 99% of eligible beneficiary deposits as "ineligible" for FSCS protection

The FSCS protects bank deposits up to a limit of £85,000 per account.

Because of the historic failings between 2015 and 2022 the PRA has fined HSBC Bank plc (HBEU) and HSBC UK Bank plc (HBUK) a total of £57,417,500.

The failings included a 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. The fine is the second highest imposed by the PRA and reflects the seriousness of the failings, the PRA said.

HSBC was said to have failed to put in place adequate systems and controls and governance, to ensure the integrity of critical information which the FSCS would rely on to make prompt payments to depositors in the event of a firm failure.

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.

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 if the need arises.

Sam Woods, deputy governor for Prudential Regulation and CEO 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.

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. 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.

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, it said.