Widespread failings identified in damning HSBC report

Friday 04 September 2015

A Jersey-incorporated bank failed to detect sanction breaches, did not identify high-risk clients and did not report suspicious activity by clients quickly enough, according to a report by the Jersey financial services regulator.

A two-year report into HSBC in the Middle East – a part of the HSBC group that was incorporated in Jersey – has uncovered a range of compliance failures by the bank’s staff.

And now the bank has been criticised by the Jersey Financial Services Commission, who say that HSBC has taken steps to clean up its act.

In a public statement issued yesterday, the JFSC has revealed the findings of the 12,000-page report that detailed failures between 2008 and 2012.

During the period, the bank was operating in the Middle East, North Africa and Pakistan.

The findings include:

- “The Commission has concluded that the Bank failed to adequately detect breaches of Jersey sanctions legislation in a timely manner.”

- “Customer Due Diligence was assessed as not entirely adequate in 83 of the 100 customer relationships reviewed, with the most common issues being lack of address verification, inadequate certification of documents, and insufficient ownership and control information.”

- “Steps were not taken to establish the source of wealth of relevant Politically Exposed Persons in all applicable relationships, and in few applicable relationships was source of wealth verified or verified adequately.”

- “In certain instances, customer relationships were not reviewed when trigger events occurred, and screening and payment alerts were closed without sufficiently documented rationale.”

The Commission has also set out in its report the work that HSBC in the Middle East has done to clean up its act – including “de-risking” its customer base, increasing the number of staff in its compliance section and improving customer evaluation and profiling.

The JFSC says that the effectiveness of the implementation plan will be independently verified over the course of 2015 and 2016.