Recently, the Bank of England imposed a £ 57.4 million (approximately RMB 520 million) fine on HSBC, stating that the bank has had deficiencies in protecting customer deposits for several years.
It is reported that this is the first penalty in the UK aimed at improving deposit insurance rules to protect customers in the event of bank failures. It is also the second largest penalty in the history of the Prudential Regulation Authority (PRA) under the Bank of England, second only to the £ 87 million fine received by Credit Suisse in July 2023.
In response to this, renowned strategic positioning expert and founder of Fujian Huace Brand Positioning Consulting, Zhan Junhao, stated in an interview with the Huaxia Times that the huge penalty imposed by the UK regulatory authorities on HSBC reflects its serious attitude towards financial regulatory violations, which is consistent with the severity of HSBC's violations.
"It also serves as a warning to other banks to pay attention to the issue of customer deposit protection." Yuan Shuai, Deputy Secretary General of the Zhongguancun Internet of Things Industry Alliance, added to a reporter from the Huaxia Times that HSBC's violations involve the issue of customer deposit protection, which is a very important regulatory indicator. Therefore, the penalties imposed by regulatory authorities are very strict.
Long term errors in depositor protection
According to the official website of the Bank of England, this punishment involves two banks under HSBC Holdings, HSBC Bank plc (HBEU) in London and HSBC UK Bank plc (HBUK) in the UK. The reasons for punishment include failure to accurately identify deposits eligible for protection under the Financial Services Compensation Scheme (FSCS). Among them, the violations of HSBC Bank London (HBEU) occurred between 2015 and 2022, while the violations of HSBC Bank UK (HBUK) occurred between 2018 and 2021.
Specifically, both companies have failed to allocate clear ownership to the processes required by the depositor protection rules, and have failed to ensure that senior management is responsible for the integrity of these processes and the information required by the depositor protection rules under the senior management and certification system.
In addition, HSBC Bank London mistakenly marked 99% of eligible beneficiary deposits as "not eligible for FSCS protection.". The bank also provided incorrect evidence to PRA confirming that its system meets certain requirements of the Depositor Protection Rules, and has not provided the final version of the annual report signed by the board of directors for consecutive years to confirm compliance with the requirements of the Depositor Protection Rules.
It is reported that the Financial Services Compensation Scheme (FSCS) is known as the "last resort fund" for UK companies, which can initiate FSCS to compensate customers when the company is unable to pay its due debts. FSCS covers companies regulated by the Financial Conduct Authority (FCA) and PRA, as well as EU companies operating in the UK. The current deposit insurance plan in the UK is a sub plan of the Financial Services Compensation Scheme (FSCS).
Sam Woods, Vice President of Prudential Regulation and CEO of PRA, stated that the serious mistake in this case involves the core of PRA's safety and soundness objectives. "It is crucial that all banks fully comply with the requirements regarding liquidation preparation."
Sam Woods stated that due to HSBC's cooperation in the investigation process, such as admitting certain violations in advance, the fine was reduced by 15%. In addition, due to the agreement of the two banks to resolve the issue, they are eligible to further reduce the fine by 30%. "Without these reductions, PRA will impose a fine of £ 96.5 million."
He also stated, "PRA does not believe that HSBC's violations were intentional or reckless."
It is worth mentioning that if the deposit is marked as "not eligible for FSCS protection", does it mean that HSBC has missed paying deposit insurance premiums?
"Generally speaking, the deposit insurance system requires banks to pay premiums to form a deposit insurance fund to protect the interests of depositors. If banks fail to correctly identify deposits that meet insurance qualifications, it may lead to incorrect premium calculation, which in turn affects the correct accumulation and use of deposit insurance funds." Regarding whether HSBC may have missed paying deposit insurance premiums as a result, Zhan Junhao told this reporter, "In theory, HSBC may not have fully complied with deposit insurance regulations, but the specific situation needs further investigation and confirmation."
He also added that deposit insurance fees are usually paid uniformly by banks, rather than directly by individual depositors.
Previously acquired the UK branch of Silicon Valley Bank for £ 1
The reporter noticed that HSBC Bank, which was fined this time, also participated in the rescue of Silicon Valley Bank.
On March 13, 2023, after a thunderstorm at Silicon Valley Bank in the United States, HSBC Holdings announced that its UK subsidiary, HSBC Bank, had acquired a subsidiary of Silicon Valley Bank in the UK for £ 1. The acquisition price is approximately RMB 8.4 based on the exchange rate on the day of acquisition.
According to the acquisition announcement, as of March 10, 2023, Silicon Valley Bank's UK subsidiary had approximately £ 5.5 billion in loans (approximately RMB 45.864 billion) and approximately £ 6.7 billion in deposits (approximately RMB 55.884 billion); The pre tax profit for 2022 is £ 88 million (approximately RMB 734 million). The tangible equity of Silicon Valley Bank's UK subsidiary is expected to be approximately £ 1.4 billion (approximately RMB 11.677 billion).
The Bank of England has stated that all depositors' money is safe, and Silicon Valley Bank's UK subsidiary will continue to operate normally under the ownership of HSBC Bank. "No other UK bank has been directly or substantially affected by the resolution of Silicon Valley Bank's parent company."
HSBC Group CEO Noel Quinn stated that this acquisition has significant strategic implications for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to provide services to innovative and rapidly developing enterprises in fields such as technology and life sciences.