Greensill scandal: Sunak vows closer regulatory scrutiny to spot risks early in Treasury response

·3-min read
UKRAINE - 2021/04/04: In this photo illustration the Greensill logo of a Greensill Capital financial services company is seen on a smartphone and a pc screen. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
The demise of Greensill Capital, which was once worth around $30bn (£26bn), arguably sparked one of the biggest political crises in a decade. Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

The UK government, Financial Conduct Authority (FCA) and Bank of England (BoE) have issued a response to a report on Lessons from Greensill Capital from the Treasury Committee.

The extensive document published on Friday comes in response to the committee’s report in July, which highlighted recommendations after the London-based finance firm collapsed earlier this year.

The demise of Greensill Capital, which was once worth around $30bn (£26bn), arguably sparked one of the biggest political crises in a decade.

Former prime minister David Cameron and chancellor Rishi Sunak were both dragged into probes over ethics and possible impropriety. Cameron had a commercial interest in the firm and potentially stood to make millions if the business went public.

In a letter on Friday, Sunak said the government was “committed to ensure we learn any wider lesson from this episode”, and that the Treasury was now working with both the FCA and the Prudential Regulation Authority (PRA).

It will consider how change of control applications are dealt with following the company’s collapse, and what changes might need to be considered, for example, ensuring sufficient relevant information is received from an applicant for a change of control.

This will allow regulators to fully assess the risks of the proposal in a timely manner, he said.

Read more: The Greensill scandal: How finance firm's collapse rocked Westminster

Greensill Capital's stated business was the provision of supply chain finance. This is a form of short-term finance where future payment obligations are transferred to a finance provider in return for that provider paying the supplier up front.

It went bust after losing insurance coverage for a key part of its business.

In July, it was highlighted that the failure of Greensill demonstrated a need to bring supply chain finance within the regulatory perimeter for financial services.

Greensill Capital was not regulated by the PRA or the FCA, and where the company needed to undertake regulated activities, it instead made use of the “appointed representatives’ regime.”

The Treasury previously urged for the scheme to be reformed as some firms may be using the appointed representatives regime for purposes beyond those for which it was originally designed.

It recommended limiting its scope and reducing opportunities for abuse.

Watch: Auditors for Greensill Capital and Gupta-owned Wyelands Bank face scrutiny

In response to this, the letter said: “I agree that, as a matter of course, public sector organisations should not normally rely on obtaining finance by borrowing from commercial banks or supply chain finance as it is almost always more expensive than relying on the government’s credit rating.

“The Treasury has already started work to review the regime, and as part of this will consider legislative reforms that may be necessary to strengthen the oversight of appointed representatives and to prevent opportunities for abuse of the system.”

Read more: David Cameron lobbied Bank of England on behalf of bust Greensill

The report also raised the issue of information collection and sharing, and regulatory cooperation, in respect of non-bank finance.

“The Treasury will continue to work closely with the Bank, the PRA and the FCA to consider challenges around data collection, and will consider carefully whether any additional powers are required to deliver on financial stability objectives,” the finance minister said.

“Non-bank data gaps remain an international issue that regulators globally are working to address.”

At the time of its collapse, Greensill said its largest client — GFG Alliance — had started to default on its debts. Japanese firm Softbank's Vision fund lost money from Greensill's demise.

The collapse has also burnt Credit Suisse (CSGN.SW), which helped to finance Greensill with billions.

Watch: Government lobbying scandal explained

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