The government is ‘working urgently’ to limit the potential fallout, says UK prime minister
The UK insurtech sector has breathed a collective sigh of relief following news that HSBC has acquired the UK arm of US lender Silicon Valley Bank (SVB), which collapsed on 10 March 2023.
London-headquartered HSBC is the largest bank in Europe and swooped to rescue SVB’s UK arm, buying it for just £1 and averting a potential crisis in the UK’s technology sector.
SVB was initially founded in 1983 by Roger V Smith as a commercial bank – it specialised in high-growth startups, including insurtechs.
A run on deposits over the weekend drove California-based SVB into insolvency, making it the largest bank failure seen since the 2008 global financial crisis.
In 2022, SVB’s UK branch was formed as a subsidiary bank after hitting a threshold of £100m insured deposits, as reported in The Guardian.
The UK arm of SVB had nearly 3,300 clients, mainly consisting of startups, venture-backed firms and funds.
On Friday last week, the Bank of England warned that it had plans to put SVB UK into insolvency.
However, the government-brokered deal has averted potential catastrophe.
The FCA worked closely with the Bank of England, Prudential Regulation Authority (PRA), Financial Services Compensations Scheme (FSCS) and the UK government in organising the sale to HSBC.
A spokesperson for the FCA said: “This morning (13 March 2023), the Bank of England, in consultation with the PRA, HM Treasury and the FCA, has taken the decision to sell SVB UK – the UK subsidiary of the US bank – to HSBC UK Bank Plc.
“SVB UK remains authorised by the PRA and FCA. It will operate as normal and the Bank of England and HM Treasury have confirmed depositors’ money is safe as a result of the transaction.
“SVB UK customers will continue to have access to the FSCS and Financial Ombudsman Service and their other consumer rights are unaffected.
“Customers of SVB UK can contact the bank through their usual channels.”
Despite the HSBC purchase, many UK-based insurtechs are US-funded and will be watching to see how the situation in the US develops.
The near collapse of SVB UK followed the collapse of government-backed asset Tech Nation in February, after its funding was awarded to Barclays Bank.
Government working urgently
The UK government said it was now trying to limit the potential fallout from near collapse.
Read: Tech Nation set to close its doors after a decade as funding pulled
Read: Insurtech UK backs new national fintech hub
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In a statement today, UK prime minister Rishi Sunak said the government had “worked urgently” over the weekend to listen to stakeholders and provide an appropriate solution to customers.
Sunak said: “The good news is customers of SVB UK will be able to access their deposits and banking services as normal from today.
“That’s because Silicon Valley Bank has been sold to HSBC.
”This transaction has been facilitated by the Bank of England, in consultation with the HM Treasury and Jeremy Hunt, using powers granted by the Banking Act 2009. No taxpayer money is involved and customer deposits have been protected.”
Sunak admitted that he was often “painted as some kind of tech geek” – a label he said he was proud of.
He continued: “I will always be on the side of entrepreneurs, innovators, young people inventing the future, because the biggest lesson I took from my time in California still guides me now.
”What really matters for economic success is innovation. If we want our country to succeed, we need to do what we’ve always done and embrace new technologies and the people and culture that creates them.
”No serious analysis of our prospects could conclude anything different.
“I hope SVB UK customers feel reassured today by the strength, safety and security that today’s news brings them and excited about the opportunities a global bank like HSBC can give them to grow around the world.”
Welcome news
Insurtech UK co-chairs John Warburton and Luisa Barile said the trade body welcomed the positive response from both government and the Bank of England for the private sale of SVB UK to HSBC.
They said: “We were saddened how the bank run spiralled to bring down SVB, which had done a huge amount for fledgling startup businesses across the tech ecosystem.
”The past few days have been an extremely challenging time for some of our members, but we are glad that positive resolution has been found. We welcome the decisiveness in action taken by government and the Bank of England.
“We equally appreciate the tireless work by civil servants over the weekend to ensure the necessary banking services can continue for those affected both in our own community as well as the wider UK tech sector.
“Clearly lessons will need to be learnt from this episode. Insurtech UK will continue to liaise closely with the Treasury and regulators on both immediate next steps and potential policy revisions.”
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