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HMRC internal manual

Banking Manual

Bank compensation restriction: excluded expenses: administrative errors - examples

Bank F has 2000 branches in the UK. Each of the branches handles an average of 500 customer transactions in-branch each week. Bank F knows that on average a branch will make an administrative error such as transposing an account number, mis-spelling a name and so on one time in 1,000 transactions. Branches are authorised to offer miscellaneous compensation in these cases of up to £50 for distress, inconvenience and so on. 

Because the bank handles one million customer transactions in branch each week, it averages 1000 such incidents a week, and 365,000 each year. With the monetary limit in place, the bank expects anything around £7.3m to be paid in such incidents in an average year.

Such a figure might be significant enough to be disclosable in the accounts. However, such compensation is not the target of the measure and these expenses would not be disallowed.

Example 1

Bank G has 1.5m customers with current accounts in the UK. It processes around 9m transactions on these accounts in any given day. One day, due to a clerical error in the bank’s head office, payments into 50,000 accounts are delayed by 24 hours.

The bank agrees to compensate affected customers by giving them £10 as well as covering any losses the customer can demonstrate as arising from the error. In total, the compensation paid out is £1.5m.

This would be excluded under the category of administrative issues.

Example 2

Bank I establishes a new policy that staff should only deposit cheques 24 hours after they are received. The bank does not tell its customers of the change, and where individual customers complain they are told that there have been unforeseeable delays. Ultimately, the regulator intervenes and determines that the bank has operated improperly, and should compensate affected customers.

In this case the compensation is payable because the regulator has determined that the bank had intentionally mistreated its customers. This is not merely an administrative error. Assuming that the other conditions were met, the compensation would be disallowed.