Rishi Sunak set to tighten UK financial regulations after Greensill scandal

Financial & markets regulation updates

Chancellor Rishi Sunak has ordered two immediate reviews of UK financial regulation related to the collapse of Greensill Capital as he accepted some recommendations from a report by a committee of MPs into the scandal.

Greensill, which collapsed in March 2021, employed former prime minister David Cameron as an adviser. The company had a “symbiotic relationship” — in Cameron’s words — with GFG Alliance, a metals group now being investigated by the Serious Fraud Office.

MPs and others have also questioned why Lex Greensill, founder of the company, was given an unpaid advisory role within Whitehall by the Cameron government in 2012 — where he pushed “supply-chain finance”, a form of factoring.

The Conservative-dominated House of Commons Treasury select committee made several recommendations when in July it issued a report accusing Cameron of a “significant lack of judgment”.

In a letter to the committee, Sunak said he had accepted its call for reform of the “appointed representatives regime”.

While Greensill Capital was based in the UK and arranged tens of billions of pounds in financing a year, it largely escaped direct oversight from Britain’s regulators. The Financial Conduct Authority, which opened an investigation into Greensill in March, subcontracted oversight of a key Greensill unit to a third-party firm under this regime.

Sam Woods, deputy governor of the Bank of England for prudential regulation, told the committee that this form of regulation was designed 40 years ago for self-employed salespeople rather than for the regulatory hosting of companies such as Greensill.

Sunak said he had already commissioned the Treasury to review the regime, which would include legislative reforms to strengthen the oversight of appointed representatives to prevent “opportunities for abuse of the system”.

The chancellor also said that he was pursuing the committee’s recommendation for reform of the “change in control” process that regulates who can acquire the ownership of a bank. It is overseen by the Prudential Regulation Authority, which Woods is chief executive of.

The MPs had called for a shake-up to prevent existing banks from falling into the hands of owners who would not be granted a banking licence in their own right. Sanjeev Gupta, whose family owns GFG Alliance, acquired a bank called Wyelands in 2016 through a change in control, although it was ordered by the BoE to return its cash to savers in March this year. 

In his evidence to the select committee, Woods said that a 2009 EU directive had “shifted the burden of proof” around approving new owners of existing banks, making it harder for regulators to block takeovers.

Woods added that reverting to the previous approach — whereby the PRA could object if it was not completely satisfied that key criteria had been met — would “strengthen the hand of the regulator where the position is unclear”.

In other areas Sunak gave a more cautious response to the committee, for example in its request for the definition of “securitisation” — in the securitisation regulation — to be expanded to include supply chain finance.

Woods had told the committee it was “a bit bizarre” that the Greensill securities were not covered by the system because — unlike with securitisations — there was no “tranching of risk”.

But Sunak argued it would be “inappropriate” to expand the relevant regulation to the onward sale of supply chain finance loans because they had different risks to a securitisation.

Sunak added that changing the definition of securitisation regulation — so it did not just include tranched loans — would bring swaths of commercial lending into scope of the regulation. This would impose “detailed and prescriptive requirements on lenders”, with a negative impact on companies’ ability to access finance, he argued.

The government did not believe that supply chain finance posed systemic risk to the wider economy, the chancellor said.

However, he said it was possible that some new regulatory requirements could be useful for non-tranched loans and added the government would consult with regulators on whether this could be useful.


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