FCA fines HSBC £6.2 million for unfair treatment of customers in financial difficulty

On 23 May 2024, the Financial Conduct Authority (“FCA”) fined HSBC UK Bank plc, HSBC Bank plc and Marks and Spencer Financial Services plc (together, “HSBC”) £6,280,100 for its historic inadequate treatment of customers in financial difficulty across secured and unsecured products. 

This decision demonstrates how early remediation and proactive co-operation with the FCA can operate as a mitigating factor during penalty calculations, and provides guidance on the FCA’s expectations around procedures, training, and governance when dealing with customers in financial difficulty. 

Background to the fine 

In 2018, HSBC notified the FCA of problems it had identified in its treatment of customers who were in arrears or in financial difficulty relating to the period June 2017 to October 2018. HSBC then commissioned an independent consultant-led review of its collections and recoveries practice. 

In January 2019, the FCA required HSBC to commission a skilled person review on the adequacy of its arrears handling and collections and recoveries operations, to determine whether it was treating customers fairly. The skilled person review analysed a sample of personal loans, current accounts, credit cards, overdrafts, and mortgages. Unfair outcomes were identified in 44% of the sample chosen, sometimes where customers were in a position of vulnerability. The FCA re-reviewed a proportion of those files as part of its investigation.

HSBC launched a proactive remediation and redress programme to address the identified failings. This involved investing up to £94 million in transforming HSBC’s operations and governance, and providing £185 million redress to 1.5 million customers who had experienced or were at risk of financial detriment and potential distress and inconvenience. 

What did the FCA conclude?

The FCA found that HSBC breached its Principle 3 requirement to exercise reasonable care to organise and control its affairs responsibly and effectively, and its Principle 6 requirement to pay due regard to the interests of customers and to treat them fairly. The FCA also found breaches of CONC 7.2.1R, 7.3.4R, 7.3.14R and MCOB 13.3.2A. 

The FCA found that breaches occurred in relation to the following behaviour:

• Customer circumstances: HSBC did not carry out appropriate affordability assessments, sufficiently probe customers’ financial circumstances, or establish how and why some customers fell into arrears. This resulted in customers being unable to afford payments or to maintain their arrangements.
• Forbearance: There were instances where HSBC did not apply forbearance to support customers in financial difficulty. This meant that some customers were denied forbearance when it would have been of assistance, and others were offered it even though it would not have positively impacted their financial situation.
• Disproportionate action: HSBC acted disproportionately in triggering default, litigation, and repossession activity and did not take all reasonable steps to resolve customer arrears positions beforehand. Automated systems generated default notices, final demands, and adverse credit reporting for customers with low arrears balances without allowing for sufficient consideration of individual cases. 

The FCA found that the causes of these failings included:

• HSBC did not have effective policies and procedures to enable agents to obtain adequate information from customers relating to their circumstances, to ensure fair treatment.
• HSBC did not provide sufficient training for agents to be able to make informed judgments when dealing with customers. In particular, there was a marked inability for agents to identify potentially vulnerable customers. 
• There was inadequate discussion of Management Information relating to customer outcomes across a range of HSBC’s core governance committees which had responsibility for customer outcomes. 
• HSBC had insufficient call quality assurance. It did not measure or assess customer outcomes and did not provide a view on whether the conversations held and the actions performed led to a fair outcome for the customer. 

Penalty

The FCA issued HSBC with a fine of £6,280,100. 

In calculating this figure, the FCA used the relevant revenue figure as usual, and assessed the overall seriousness to be “Level 3”, thereby applying a 10% multiplier to reflect the fact that the breach caused both significant loss or risk of loss to individual consumers, and that the breach revealed serious or systemic weakness in HSBC’s procedures.

No adjustments were made for disgorgement, deterrence, or aggravating factors. However, a 50% discount was applied as a mitigating factor to reflect the fact that: 

• HSBC had identified and alerted the FCA of the breach quickly; 
• HSBC had fully co-operated with the FCA and had engaged in a skilled person review; 
• HSBC had proactively undertaken an extensive redress scheme which went well beyond the relevant period and was likely to over-remediate customers; and 
• HSBC had undertaken significant steps to remedy the failings to ensure that similar problems could not arise in the future. 

A 30% settlement discount was also applied to reflect the fact that the FCA and HSBC had reached an agreement at Stage 1. 

Commentary

The substantial reduction in the fine as a result of mitigating factors demonstrates the potential benefits of taking proactive measures regarding remediation and redress where firms identify breaches. It is noteworthy that the amount of the deduction for co-operation is the same as the maximum available under the PRA’s Early Account Scheme. The latter offers the certainty of a deduction if certain criteria are fulfilled, whereas the FCA maintains the position that a co-operation discount is something it will consider at the end of an investigation as part of the penalty assessment. 

Likewise, whilst the FCA final notice relies heavily on the skilled person’s findings, it also contains thorough guidance across several key areas, suggesting that firms should: 

• Training: Ensure that customer-facing staff are sufficiently trained on forbearance options, determining customer circumstances, and identifying vulnerability. 
• Systems: Ensure automated systems only take proportionate action, and that there is a group-wide system for reporting vulnerability. 
• Management information: Generate management information which is outcomes-focused as opposed to being purely operational or financial, and ensure that it is accompanied with information about root causes. 
• Policies and processes: Have comprehensive policies and processes to detail the circumstances in which various forbearance options might be suitable, and to limit the scope for personal discretion of agents. 
• Organisational change: Pay close attention to governance, accountability, and processes during periods of organisational change (which, in HSBC’s case, involved the inception of the ring-fenced bank). 

These failings are historic and customer support, particularly for those in financial difficulty, should have been thoroughly reviewed as part of firms’ Consumer Duty implementation programmes, particularly given the FCA’s enhanced focus on outcomes for vulnerable customers.

The FCA’s press release is available here, and the FCA’s final notice is available here.