The collapse of Greensill Capital does not demonstrate the need to bring supply chain finance within the perimeter for financial services, the UK parliament’s Treasury Committee has said.
It’s one of a number of conclusions drawn from its three month long “Lessons from Greensill Capital” inquiry report. It also said that, while supply chain finance appears to be useful in some contexts, it believes it would be “preferable” for the government to address the underlying cause of the problem by paying suppliers sooner.
Commenting on the report, the Treasury Committee’s chairman Mel Stride MP said: “Our report sets out important lessons of the treasury and our financial system resulting from both Greensill Capital’s collapse and David Cameron’s lobbying.
“The treasury should have encouraged David Cameron into more formal lines of communication as soon as it had identified his personal financial incentives. However, the treasury took the right decision to reject the objectives of his lobbying, and the committee found that treasury ministers and officials behaved with complete and absolute integrity.
“There are a number of lessons for the operation of our financial system, including the need for urgent reform of the Change in Control regulations for the acquisitions of banks, reform of the appointed representatives regime, and the need for more data on non-banking lending.
“We look forward to the conclusions of the other inquiries on the collapse of Greensill Capital, and will continue to follow developments closely.”
Greensill Capital collapsed in March 2021 after its insurer refused to renew cover for loans it was making. Prior to this, the firm provided its supply chain finance services to the likes of Liberty Steel owner GFG Alliance and a range of public bodies.
The firm was not regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA), and where the lender needed to undertake regulated activities, it used an “appointed representatives” regime. The Treasury Committee concluded that firms may be using this for purposes beyond what it was originally designed for, and therefore recommends that the FCA and treasury considers reforms to the regime with a view to limiting its scope and reducing opportunities for abuse.
As part of its work with the UK government, Greensill operated Earnd, which was a salary advance service provided to NHS Trusts. Because of this, the committee recommends the treasury should be more involved in determining whether such “novel” schemes - when provided for free - are appropriate. If it’s deemed as such, the government should consider whether additional controls are required.
The parliamentary committee also raised Wyelands Bank, which was owned and wound down by GFG Alliance’s Sanjeev Gupta, and had ties with Greensill. As a matter of urgency, the Treasury Committee recommends that there should be reform of the Change in Control process that regulates who can acquire ownership of an existing bank. This, it believes, should ensure that PRA has powers to make sure existing banks don’t fall into the hands of owners who wouldn’t be granted a banking licence in their own right.