HSBC UK Bank Plc · DRN-6256157

The complaint X, a limited company, complains that HSBC UK Bank Plc (‘HSBC’) won’t refund money they lost as the result of a scam. Mr S, as director of X, brings the complaint on X’s behalf. What happened In 2019, Mr S made an investment with a company I’ll refer to as B. As part of the investment, he made the following payments from X’s account. Initially, the payments were paid to an account in B’s name. Later payments were made to an account held in a separate company’s name, which I’ll refer to as D, but also relate to the investment with B. The transactions in italics are credits into the account. Date Pmt Details of transaction Amount 6.7.2019 Directors loan (2 transactions) £50,000 cr 8.7.2019 1 Payment to B £50,000 4.9.2019 Directors loan (2 transactions) £50,000 cr 5.9.2019 2 Payment to B £50,000 17.7.2020 Credit from C – a company £30,000 cr 17.7.2020 Credit from W – a company £15,650 cr 23.7.2020 3 Payment to B £45,000 12.8.2020 Credit – reference – gift £65,146.04 18.8.2020 4 Payment to B £65,000 2.11.2020 Credit from C – a company £40,000 cr 10.11.2020 5 Payment to D £21,700 30.11.2020 Credit from W – a company £14,350 cr 3.12.2020 6 Payment to D £12,000 30.3.2021 Credit from W – a company £5,000 cr 1.4.2021 7 Payment to D £5,000 14.4.2022 Withdrawal from the investment with B £33,000 cr Mr S realised it was a scam when he tried to withdraw funds and they weren’t released on time, and X didn’t receive the full withdrawal amount requested. Mr S raised a fraud claim with HSBC on X’s behalf, through a professional representative. HSBC declined to refund X saying they had a civil dispute with B. Mr S wasn’t happy with HSBC’s response, so he brought X’s complaint to our service. An investigator looked into X’s complaint but didn’t uphold it. The investigator explained that while the payments were made from X’s account, the investment was made in a personal capacity. So, X didn’t sustain the loss, and we couldn’t fairly ask HSBC to refund X. Mr S disagreed with the investigator’s opinion and raised the following points:

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• There was a prior miscommunication with the investigator when Mr S suggested the investment was made in a personal capacity. • Mr S believed that making the investment through X would provide additional protection. • The funds paid into X’s account to fund the payments were director loans. Mr S provided a letter from X’s accountant which says the investment was intended to be a business investment and was made in a business capacity. They also provided balance sheets to support that the investment has been recorded as part of X’s balance sheet. Having reviewed the case, I reached a different answer than the investigator. So, I issued a provisional decision explaining why and giving both parties a chance to respond before a final decision was issued. My provisional decision In my provisional decision “What I’ve provisionally decided – and why” section I said: In deciding what’s fair and reasonable, I am required to take into account relevant law and regulations, regulators’ rules, guidance and standards, and codes of practice; and, where appropriate, I must also take into account what I consider to have been good industry practice at the time. Where there is a dispute about what happened, and the evidence is incomplete or contradictory, I’ve reached my decision on the balance of probabilities. In other words, on what I consider more likely than not happened in light of the available evidence. In broad terms, the starting position at law is that HSBC are expected to process payments and withdrawals that a customer authorises it to make, in accordance with the Payment Services Regulations (in this case the 2017 regulations) and the terms and conditions of the customer’s account. Here it’s not in dispute that these payments were authorised, although this was done not realising that X would suffer a financial loss. So, the staring position is that HSBC aren’t liable for X’s loss. Payments one, two and four Having carefully considered the evidence, I’m not persuaded that payments one, two and four were made using X’s funds – so I’m not satisfied that X suffered the financial loss on these payments. I’ll explain why. All of these payments were funded by credits into the account from personal sources. Mr S initially told us that they moved the funds through X’s account to make the investment with B as they believed it would provide greater protection if anything went wrong. But the funds came from the sale of a home and an inheritance. Also, there is evidence that the funds from the investment, in relation to these payments, would be used for Mr S to purchase another property in personal names. Mr S later said there was a miscommunication and that these payments didn’t relate to a personal investment with B. He referred to the agreements with B being in X’s name and the evidence provided by their accountant.

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Based on the source of the funds and the intended use of the funds when the investment matured, I’m satisfied that it’s more likely than not these funds were a personal investment – not an investment made on X’s behalf. So, the financial loss suffered was Mr S’s, not X’s. As I’m not satisfied that the financial loss suffered was X’s, I couldn’t fairly ask HSBC to refund X. Payments three, five, six and seven Payments three, five, six and seven were funded by credits into X’s account from two separate companies, C and W. X had previously entered into loan agreements with C and W, with regular payments paid into X’s account. Based on the loan agreements, I’m satisfied that payments three, five, six and seven were funded by X and constituted an investment made on X’s behalf. On that basis, I’m satisfied the financial loss was X’s and can consider whether HSBC should refund these payments. Is X entitled to a refund for payments three, five, six and seven? HSBC are a signatory of the CRM Code, which requires firms to reimburse customers who have been the victims of Authorised Push Payment (APP) scams, in all but a limited number of circumstances. But, the CRM Code does not apply to private civil disputes, such as where a customer has paid a legitimate supplier for goods, services or digital content but has not received them, they are defective in some way, or the customer is otherwise dissatisfied with the supplier. The CRM Code defines what is considered an APP scam as, “where the customer transferred funds to another person for what they believed were legitimate purposes, but which were in fact fraudulent”. In order to decide whether the circumstances under which Mr S (on behalf of X) made the payments, meets the definition of an APP scam, I need to consider: • The purpose of the payments and whether Mr S thought this purpose was legitimate. • The purpose the recipient (B) had in mind at the time of the payments and whether this was broadly in line with what Mr S understood the purpose to be. • And, if I decide there was a significant difference in these purposes, whether I’m satisfied that was as a result of dishonest deception. Mr S was making payments to B as part of an investment. The investment was referred to them by the directors of C and W, who they had an existing professional relationship with. So, there isn’t anything to suggest they didn’t think this was a legitimate purpose. So, I’ve gone on to consider what purpose B had in mind and whether it was in line with what Mr S thought. In reaching an answer on what purpose B had in mind, I’ve considered the wider circumstances surrounding B, and the linked companies involved in the investment. The key information is: • Of the £28m that B received from investors, approximately £4.7m was invested, with

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only £4.1m returned. But around £19m was paid out to investors, despite those funds never being traded. • So less than 17% of investors’ funds appear to have been traded, which suggests the funds weren’t used for the intended purpose of forex trading. • It’s likely that B was using investors’ funds to pay returns, so it appeared that it was making the trades and achieving the promised performance. This was most likely done to mislead investors and attract further investment. • B wasn’t regulated by the FCA, which was needed to undertake the activity that it was alleged to be engaged in. B appears to have misled investors over the need to be regulated and put that in writing in its managed account agreements – including those signed with X. Taking all of these points into consideration as a whole, I’m satisfied that it’s more likely than not X’s funds weren’t used for the intended purpose by B, and X was the victim of an APP scam. So, payments three, five, six and seven are covered by the CRM Code. The CRM Code says X is entitled to a full refund on these payments unless HSBC can establish that an exception to reimbursement applies. Does an exception to reimbursement apply? Under the CRM Code, a bank may choose not to reimburse a customer if it can establish that*: • The customer made payments without having a reasonable basis for believing that the payee was the person the customer was expecting to pay; the payment was for genuine goods or service; and/or the person or business with whom they transacted was legitimate. • The customer ignored effective warnings, by failing to take appropriate action in response to such an effective warning. * There are further exceptions outlined in the CRM Code, but they don’t apply to this case. I’m satisfied that Mr S had a reasonable basis for believing the investment was legitimate. I say this because B was referred to them by the directors of C and W. C and W had met the terms of their loan agreements with X, and X had received the expected returns from them. This added legitimacy to the investment with B. Also, Mr S had met the partners of B and attended their office and checked Companies House in relation to B. Mr S didn’t find any concerning information about B online. When Mr S was asked to start making payments to D, they checked Companies House and anonymously rang D to confirm their identity and that the accounts were linked to investments with B – which was confirmed. I haven’t seen any evidence that suggests there were warning signs that B wasn’t offering a genuine investment when Mr S made these payments from X’s account. On that basis, HSBC can’t rely on basis for belief as an exception to reimbursement. HSBC haven’t said that a warning was shown when the payments were made, so there isn’t any evidence that Mr S ignored any effective warnings. This means HSBC can’t rely on this exception to reimbursement either.

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As, I’m not satisfied that HSBC can rely on an exception to reimbursement, X are entitled to a full refund for payments three, five, six and seven. However, they have received returns from their investment with B, which need to be taken into account. The redress I can see that X received a return of £33,000 in relation to their investment with B. Given that X was falling victim to a scam, I don’t think this money should be attributed to any specific payment. Instead, I think this money should be deducted from the amount lost by apportioning it proportionately across all of the payments X made to the scam. This ensures that these credits are fairly distributed. To work this out, HSBC should take into account all of the payments X made to the scam, which I’ve set out in the background section above. In this case, the returns received equal £33,000 and the total amount paid to the scam equals £248,700. HSBC should divide the returns by the total amount paid to the scam. This gives the percentage of the loss that was received in returns. Deducting that same percentage from the value of each payment gives the amount that should be reimbursed for each payment. Here the returns amount to 13.27% of the total paid to the scam. It follows that the outstanding loss from each payment should be reduced by the same percentage. That means HSBC should reimburse 86.73% of payments three, five, six and seven. Please note that I’ve rounded the relevant percentages down to two decimal places. But HSBC should perform the calculation I’ve set out above to arrive at a more precise figure, as I have done to arrive at the figure below. After taking the steps set out above, I calculate X’s outstanding loss from payments three, five, six and seven to be £72,593.85, which HSBC should refund. As X has been deprived of the use of these funds, HSBC should pay simple interest of 8% per year on the refund, calculated from the date they declined X’s claim until the date of settlement. My provisional decision was that I intended to uphold the complaint and ask HSBC to refund £72,593.85 to X, and pay simple interest of 8% on that refund, calculated from the date HSBC declined X’s claim to the date of settlement. Responses to my provisional decision HSBC responded to say they didn’t agree with my provisional decision for the following reasons: • They’re entitled to rely on R3(1)(c) under the CRM Code to pause giving an outcome. • Our service aren’t necessarily party to the whole facts, unlike enquiries by Law Enforcement, and it’s not safe or reasonable to reach a conclusion on the balance of probabilities. • HSBC shouldn’t be held liable for a failed investment scheme which they could not reasonably have detected or provided an effective warning for. • D were an active registered company who appear to have been operating legitimately, so the CRM Code does not apply to the payments made to D. X also responded disagreeing with the provisional decision, for the following reasons:

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• The evidence establishes the commercial nature of the investment. • The source of funds should not warrant consideration. X is a separate legal entity capable of owning property in its own right separate from its owners. • We have incorrectly referred to Mr and Mrs S, when it is Mr S and his sister Ms S who are directors of X. There was no intention for them to purchase a property together with the funds from the investment. • The need to use funds to purchase a property happened after the investment was made in response to a family crisis and cannot be used to retrospectively infer the original purpose of the investment made years earlier. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Is it appropriate to determine this complaint now? There may be circumstances and cases where it’s appropriate to wait for the outcome of external investigations and/or related court cases. But that isn’t necessarily so in every case, as it may be possible to reach conclusions on the main issues on the basis of evidence already available. And it may be that the investigations or proceedings aren’t looking at quite the same issues or doing so in the most helpful way. I’m conscious, for example, that any criminal proceedings that may ultimately take place might concern charges that don’t have much bearing on the issues in this complaint; and, even if the prosecution were relevant, any outcome other than a conviction might be of little help in resolving this complaint because the Crown would have to satisfy a higher standard of proof (beyond reasonable doubt) than I’m required to apply (which – as explained above – is the balance of probabilities). As for investigations by liquidators, these are normally made for the purpose of maximising recoveries for creditors. Sometimes they lead to civil proceedings against alleged wrongdoers, or against allegedly implicated third parties. But the claims may not be relevant to the issues on the complaint. And, even if they are potentially relevant, such claims are quite often compromised without a trial and on confidential terms, so the outcome is of little benefit to our service. In order to determine X’s complaint, I have to ask myself whether, on the balance of probabilities, the available evidence indicates that it’s more likely than not X was the victim of a scam rather than a failed investment. But I wouldn’t proceed to that determination if I consider fairness to the parties demands that I delay doing so. I need to bear in mind that this service exists for the purpose of resolving complaints quickly and with minimum formality. And, as a general rule, I’d not be inclined to think it fair to the parties to a complaint to put off my decision unless, bearing in mind the evidence already available to me, a postponement is likely to help significantly when it comes to deciding the issues. For the reasons given above and below, I don’t think it’s necessary to wait for the outcome of the ongoing investigation for me fairly to reach a decision on whether HSBC should reimburse X under the provisions of the CRM Code. Statutory body investigating HSBC say they can rely on R3(1)(c) and defer giving an outcome.

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Under the CRM Code R3 (1)(c), says: “if a case is subject to investigation by a statutory body and the outcome might reasonably inform the Firm’s [HSBC’s] decision, the Firm [HSBC] may wait for the outcome of the investigation before making a decision”. However, in this case, HSBC made a decision on X’s claim under the CRM Code, saying it was a civil dispute. HSBC didn’t tell X in their final response letter that they wouldn’t reach a decision, so they can’t now rely on that clause. And, based on all the evidence that I’ve seen, I’m satisfied that I can reach a decision that X’s payments are covered by the CRM Code for the reasons explained above and below. I’m not persuaded I need to wait for any further updates from external parties or organisations to reach my decision. Why I’m still satisfied that X’s complaint is covered by the CRM Code for payments three, five, six and seven While some of the payments went to D, I’m satisfied that the evidence shows that D was taking payments on behalf of B. As a result, once the funds went to D, they were no longer under X’s control – with D acting on B’s behalf. Paying the funds to D, doesn’t mean the payments aren’t covered by the CRM Code. Also, for the reasons given in my provisional decision, I’m satisfied that there is sufficient evidence for me to reach the conclusion that B took X’s funds with a different purpose in mind and through dishonest deception. It’s clear that investors’ funds weren’t used for the intended purpose, as B used less than 17% of investors’ funds for trading. And B paid out £19m of investors’ funds which hadn’t been traded, to give the illusion of successful trading, more likely than not to attract further investment. So, I’m satisfied that payments three, five, six and seven are covered by the CRM Code and X are entitled to a full refund of their outstanding loss on these payments. I say this as I haven’t seen any evidence that HSBC can rely on an exception to reimbursement under the CRM Code. Why I’m still not satisfied that payments one, two and four are a business loss I would like to reassure Mr S that I have seriously considered the points raised in relation to these payments. However, even if the funds from the investment weren’t going to be used for personal purposes, this doesn’t address the source of funds and what Mr S told us. Specifically, that he moved the funds through X’s account to make the investment with B as he believed it would provide greater protection if anything went wrong. In order to clarify the issue, our investigator had asked, “is the investment made in a business or personal capacity, or some sort of combination?”. The response we received was “the investment was made in a personal capacity through our client’s company.” We were also told: “Our client had funds owed to them in the director's loan account, which were due to be repaid. Instead of withdrawing that money to reinvest personally with B, our client decided to add additional funds from their inheritance and the sale of their house into the director's loan account. This allowed our client to make the investment with B through their business. Our client believed that handling the investment through the company would provide some level of protection compared to investing as individuals.”

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And: “in our client’s words: When we later requested to withdraw the money from B, which unfortunately did not materialise, our intention was to use the funds to repay the director’s loan and support our personal living expenses.” Also, the bank statement shows that payment four was funded by a credit with the reference “gift nanna & grand”. I’m sorry to disappoint Mr S, but I’m still satisfied that it’s more likely than not these payments were funded from a personal source and constituted an investment made in a personal capacity, using X’s business account. So, I’m not satisfied that X suffered the loss and can’t fairly ask HSBC to refund these payments. In summary Having considered all of the evidence and arguments put forward by HSBC and X, I’ve reached the same answer as in my provisional decision. I’m not satisfied that I can fairly ask HSBC to refund payments one, two and four, as I’m not satisfied that it was X that suffered the financial loss on these payments. And I’m satisfied that HSBC should refund X’s outstanding loss on payments three, five, six and seven under the CRM Code as HSBC can’t rely on an exception to reimbursement. Putting things right To put things right I require HSBC UK Bank Plc to: • Refund £72,593.85 to X, and • Pay simple interest on the refund of 8% per year, calculated from the date HSBC declined X’s claim to the date of settlement. My final decision My final decision is that I uphold this complaint against HSBC UK Bank Plc and require them to compensate X as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask X and X to accept or reject my decision before 24 April 2026. Lisa Lowe Ombudsman

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