The Bank of England has signalled it may look into allegations that HSBC helped clients evade taxes, deepening the bank’s woes this week.
The allegations about advice stemming from HSBC’s Swiss private bank, which have sparked a political firestorm, are “certainly something that could be of relevance to us”, Sir Jon Cunliffe, a deputy governor of the BoE, said on Friday.
“We would expect the management and leadership of a large group to be able to ensure there is the culture and operations within that kind of group to manage the risks,” he told BBC Radio 4. He said the allegations “raised serious issues around HSBC’s conduct”.
His comments follow a denial by Downing Street earlier this week that any government minister knew the full facts of the tax scandal before media reports. That included Lord Green, the former trade minister who was also chief executive and chairman of HSBC from 2003 to 2010, including the period when its Swiss private bank allegedly colluded with clients to conceal “black” accounts from tax authorities. Lord Green has declined to comment.
Douglas Flint, HSBC’s current chairman, has been called to give evidence to the Treasury select committee later this month on the issue.
The Prudential Regulation Authority is part of the BoE that focuses on the overall stability of the markets, and sets British banks’ capital and liquidity requirements. The PRA and the Financial Conduct Authority, the markets watchdog, are trying to make senior managers of banks more accountable for failings on their watch.
The PRA has an enforcement team that can fine banks for wrongdoing — in its first fine last year it penalised the Royal Bank of Scotland £14m for IT failures — but it can also make banks hold more capital to mitigate against operational risk, an amount that can be far higher than any fine.
HSBC has admitted that some clients of its Swiss subsidiary were involved in tax-dodging activities with help from the bank. It says it has since “implemented numerous initiatives designed to prevent its banking services being used to evade taxes or launder money.”
The PRA’s involvement would add to a plethora of other agencies that have lined up in the last two days to examine HSBC’s affairs, after parliamentary criticism over UK tax authority’s “pathetic” response to the scandal.
HM Revenue & Customs was given a leaked dossier of account holders at the Swiss private banking subsidiary in 2010. It has an investigation open and its head of enforcement signalled earlier this week that it could broaden its scope by saying HMRC wanted to collaborate with other agencies. The Serious Fraud Office has said it is open to discussions with HMRC.
While it is the FCA rather than the PRA that has responsibility for banking conduct issues, the FCA has not opened a probe into HSBC. It does not investigate tax matters but it can fine banks for not having strict controls against wrongdoing and for management failures. It can also police banks’ anti-money laundering controls.
Martin Wheatley, the FCA’s chief executive, told the Treasury select committee on Tuesday that it had not been told of the HMRC’s probe into HSBC. He said it would be for a monitor put in place by US authorities and the FCA, in the wake of a $1.9bn money-laundering fine in 2012, to question the bank over the tax allegations.
On Thursday, Fitch Ratings said: “Renewed scrutiny of practices at the private banking subsidiary and possible investigations could result in new fines or other legal action.”
“It also appears that organisational complexity and a lack of management oversight played a role in HSBC’s historical conduct failings.”
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