HSBC has been handed a £57.4 million fine for “serious failings” in protecting some depositors.

The fine, the first of its kind under rules designed to protect customers from bank failures, is the second largest ever imposed by the Bank of England's Prudential Regulation Authority (PRA).

The PRA, which announced the fine on Tuesday, said that HSBC failed to accurately identify deposits eligible for the Financial Services Compensation Scheme (FSCS) which protects customers up to £85,000.

The Depositor Protection Rules require firms to put in place adequate systems and controls, and governance, to ensure the integrity of critical information which the FSCS relies upon to make prompt payments to depositors in the event of a firm failure, the PRA said, adding that HSBC’s depositor protection failings “were so significant the PRA determined that it had materially undermined the firm’s readiness for resolution”.

The watchdog also said that the bank failed to be “duly open and cooperative” in its failure 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.

HSBC also failed to assign clear ownership for the processes required under the Depositor Protection Rules and failed 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.

The PRA also said that HSBC’s failings also 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.

Sam Woods, deputy governor for prudential regulation and chief executive officer 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.

“[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.”

While being found to be in violation, HSBC’s cooperation with the investigation including the early admission of certain rule breaches resulted in a 15 per cent reduction to the penalty. The bank also received a further 30 per cent reduction in the fine for agreeing to resolve the matter.

Without reductions, the fine would have reached £96.5 million.

The PRA also said that it did not consider the violations to be deliberate or reckless.

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