Lessons from Greensill Capital Contents


This report reflects the terms of reference for the inquiry, in which we determined that we would examine the lessons which could be drawn for the financial system and its regulation from the failure of Greensill Capital, and the lessons for the Treasury and its associated public bodies arising from their interactions with Greensill Capital during the Covid crisis. (Paragraph 7)

We welcome the ongoing work on how supply chain finance is shown in accounts, which may, at times, encourage firms to use supply chain finance to obscure the firm’s indebtedness. We look forward to further analysis in this area. (Paragraph 15)

The FCA and the Treasury should give serious consideration to revising the definition of “securitisation” within the Securitisation Regulation, given that it appears to have been too narrow. (Paragraph 22)

“Prospective receivables”, as described by Sanjeev Gupta, would appear to result in a significantly riskier form of lending than traditional supply chain finance and is more akin to straightforward unsecured lending. The appropriateness of such lending will depend to a significant extent on whether, as Mr Greensill claimed, investors had the information required to appropriately understand what they were investing in. (Paragraph 29)

We await with interest the outcome of the investigation by the Serious Fraud Office. (Paragraph 33)

The total extent of the losses from the failure of Greensill is not yet clear. While there do not appear to have been direct losses to British consumers, any losses suffered by institutional investors may be passed on to consumers. (Paragraph 37)

It appears that the appointed representatives regime may be being used for purposes which are well beyond those for which it was originally designed. We welcome the FCA’s investigation into the oversight of Greensill’s regulatory permissions by Mirabella and we await its conclusions with interest. (Paragraph 50)

The FCA and HM Treasury should consider reforms to the appointed representatives regime, with a view to limiting its scope and reducing opportunities for abuse of the system. (Paragraph 51)

The failure of Greensill does not appear to have led to a threat to financial stability. We therefore consider that Andrew Bailey was right to conclude there was no case for regulation on the basis of financial stability in this case. The Bank provided an explanation of the channels through which a firm could become systemic, which includes if a firm plays a significant role in the provision of credit to the real economy, and we would expect it to be vigilant to those risks. (Paragraph 55)

We do not think the failure of Greensill leads to any particularly strong evidence about procyclicality in the regulation of insurance markets. (Paragraph 61)

We do not believe that the failure of Greensill Capital has demonstrated a need to bring supply chain finance within the regulatory perimeter for financial services.
(Paragraph 67)

The failure of Greensill Capital has highlighted risks around the growth of the non-bank sector and the expansion of non-banks into areas of financial intermediation traditionally dominated by banks. The Bank of England has recently published its paper on market-based finance, and we will scrutinise its conclusions in our ongoing work. We welcome the Bank’s focus on the importance of enhancing data on the non-bank financial sector. (Paragraph 75)

In addition to international work to intensify global co-operation and data-sharing on non-bank finance, the Treasury should work with the Bank of England and the FCA to consider which domestic data gaps could be addressed. Filling these gaps may require legislative or regulatory fixes. Where there is additional information which could be collected to assist the Bank of England in achieving its objective for financial stability, the Prudential Regulation Authority and Financial Conduct Authority should collect this information, and, if needed, the Government should put forward legislation to enable this. Any information required should be collected on a measured, proportionate basis, taking care not to impose a disproportionate burden either on firms to submit the data or on regulators to review it. (Paragraph 76)

As a matter of urgency, there should be reform of the Change in Control process which regulates who can acquire the ownership of an already existing bank. This should ensure that the PRA has the powers necessary to ensure that existing banks do not fall into the hands of owners who would not be granted a banking licence in their own right. (Paragraph 82)

It is evident that the Greensill case lends urgency to the consideration of a number of areas where there may be a case for fresh regulation. We have not examined these areas in detail, but we draw the Treasury’s attention to the areas listed by the FCA as set out in paragraph 83. We intend to monitor closely developments in this area. (Paragraph 84)

Supply chain finance appears to be a useful product in some contexts. However, instead of pursuing supply chain finance solutions, it would be preferable for the Government to address the underlying cause of the problem by paying suppliers sooner, particularly small suppliers. Given the low cost of Government borrowing, the value of this type of private sector financing to the public sector is less than would otherwise be the case. (Paragraph 92)

Because Earnd was provided free of charge, no public money was spent and this may be one reason the Treasury was not consulted on what might otherwise have been deemed a “novel” proposal for the purposes of the Treasury’s guidance on Managing Public Money. When the Government is given a service for free, this may have implications for the management (including in the future) of public money or procurement. It may also bring commercial benefits to the firm which provides the service, for example cross-selling opportunities as Greensill’s administrators cite, as well as the reputational benefit of being a supplier to the Government and potentially access to data. The Treasury should be more involved in determining whether such ‘novel’ schemes, when provided for free, are appropriate in the provision of public services. If they deem that there is a case for supporting such solutions, the Government should consider whether any additional controls may be needed around procurement where the Government or public bodies are given significant and novel financial services without charge. (Paragraph 101)

Mr Cameron was acting as a representative of Greensill, with a very significant personal economic interest in the firm. As soon as that had been identified by the Treasury, the fact that he was an ex-Prime Minister should have been irrelevant to the Treasury’s treatment of his approach. That is what the Treasury has told us happened. We consider that view later in this report. (Paragraph 136)

Mr Cameron’s use of less formal means to lobby Government showed a significant lack of judgement, especially given that his ability to use an informal approach was aided by his previous position of Prime Minister. Mr Cameron appears to accept that, at least to some degree, his judgement was lacking. (Paragraph 142)

Though they have been downplayed in evidence to the Committee, there were obvious personal links between Mr Cameron and those he lobbied in Government on Greensill’s behalf. Yet we have not seen evidence of a time or process when and by which the potential risks of those connections were considered by the Treasury, and potential mitigations put in place. The Treasury should have encouraged Mr Cameron at the initial stage of his lobbying into more formal methods of communication, and there should have been a discussion as to whether Mr Cameron’s ongoing contact posed any reputational risks to the Treasury, and whether, as a consequence, mitigation was required. In the light of these events we expect the Treasury to put in place more formal processes to deal with any such lobbying attempts by ex-Prime Ministers or Ministers in the future and to publish the process which they will follow should similar circumstances recur. We would expect any such processes to be consistent with any reforms which might be introduced as a result of the lobbying undertaken on behalf of Greensill.
(Paragraph 143)

We accept that Mr Cameron did not break the rules governing lobbying by former Ministers, but that reflects on the insufficient strength of the rules, and there is a strong case for strengthening them. Oversight of policy in this area does not fall within our remit or the terms of reference of this inquiry. We note the ongoing inquiry into the propriety of governance in light of Greensill by the Public Administration and Constitutional Affairs Committee. (Paragraph 147)

The central argument of Greensill’s attempt to gain access to the CCFF was that it would substantially benefit a very significant number of UK SMEs. Neither the Treasury nor the Bank of England believed there was merit in the claim that supporting Greensill would substantially benefit the SME sector in the UK. It seems that this was more of a sales pitch than a reality. (Paragraph 155)

The description of Greensill as a fintech firm has been questioned in the course of our inquiry. But in the lobbying by Mr Cameron this description was used with obvious intent, given the Government’s desire to promote fintech. In our view, the claim that Greensill Capital was a fintech appears doubtful. Witnesses have acknowledged that the Government has to be careful when balancing the risks around regulation and innovation. Despite the fact that the Treasury does not appear to have been influenced by the claim that Greensill was a fintech business, care does need to be taken with so called fintech businesses as to whether they are what they claim to be and whether claims about the ‘tech’ are not hiding a ‘fin’ problem. (Paragraph 164)

In retrospect, the Bank, by not informing the Treasury sooner about its knowledge of Greensill’s control problems, no matter how relatively unimportant they appeared, may have missed an opportunity. The Bank should review its approach to the disclosure of information on Greensill to the Treasury, to check that it is content with how its systems operated. (Paragraph 168)

The guarantees offered by the Government under the Coronavirus Large Business Interruption Loan Scheme, which are currently suspended, were not direct exposures to Greensill itself but were contingent liabilities relating to the companies to which it lent. But Greensill’s symbiotic relationship with the GFG Alliance meant that there was always a risk that Greensill would funnel money towards the GFG Alliance. The Bank had shared with the Treasury information concerning the GFG Alliance through the regulation of Wyelands Bank. While information does appear to have been passed through to BEIS, it appears that the information was not passed on by BEIS to the British Business Bank. There remains an open question as to whether the Treasury, BEIS and the British Business Bank missed an opportunity to prevent these guarantees being extended. We welcome the examination by the BEIS Committee of this issue. We also note the finding by the National Audit Office that a more sceptical process might have prevented the acceptance of Greensill as an accredited lender. (Paragraph 199)

The Treasury should use the events concerning Wyelands Bank, the GFG Alliance and Greensill to review the information gateways under the Financial Services and Markets Act 2000, and specifically whether there is scope to provide better information, in a more timely fashion. (Paragraph 200)

We question Mr Cameron’s judgement in relation to his lobbying on behalf of Greensill. Mr Cameron appears to have relied heavily on the Board of Greensill as a guarantee of its propriety and financial health, when arguably he should have taken a broader and more enquiring assessment of the business. There were signals available to Mr Cameron at the time when he was lobbying the Treasury and others which might have led him to a more restrained approach. (Paragraph 202)

We accept that at the start of the engagement with Mr Cameron, and therefore Greensill, it was right, given the considerable need to provide support to businesses at the start of the pandemic, for the Treasury and others to consider seriously the proposals presented by Greensill for its inclusion in the CCFF. (Paragraph 203)

We note the firm conviction of the Treasury that the fact that Mr Cameron had previously been Prime Minister and was personally well connected to those he was lobbying had no meaningful effect on how Greensill’s application for access to the Covid Corporate Financing Facility was dealt with, including the time spent on it by those at a senior level. Or, put another way, that if the approach had come from someone else less prominent or connected to the Treasury, then overall it would have been given a similar quality and level of attention and engagement. We are very surprised about this, given that Mr Cameron was an ex-Prime Minister, who had worked with those he was lobbying, had access to their mobile phone numbers, and appears to have been able to negotiate who should attend meetings. The Treasury’s unwillingness to accept that it could have made any better choices at all in how it engaged in this case is a missed opportunity for reflection. That said, we accept that Treasury officials and Ministers behaved with complete and absolute integrity in their handling of Mr Cameron’s lobbying. The Treasury also took the right decision in preventing Greensill from accessing the CCFF. (Paragraph 204)

At present, the Treasury appears confident that the direct costs of Greensill’s failure to the public purse will be limited. The indirect costs will relate to the guarantees provided under the CLBILS scheme, which are currently suspended. However, we note that the rationale for the suspension of those guarantees is contested by Greensill. It is also too early to assess what additional costs to the public purse might crystallise.
(Paragraph 211)

It is not surprising that the Government was urgently searching for different ways to support the UK economy, including investigating avenues when they were unsure as to whether or not they would be useful. (Paragraph 213)

The impact of the pandemic exposed some gaps in the Government’s knowledge about how some financial products and entities interact with the real economy. Some of those gaps may be filled by improved data collection, as we have recommended in Chapter 2. However, the Treasury has a different remit to the regulators, and its information requirements may also therefore differ. (Paragraph 215)

While the nature of the next civil emergency is unknown, the Treasury should consider what information it needs, in the planning for, and provision of, public support for potential future emergencies. In doing so, it should liaise with the Cabinet Office to ensure that major emergency planning exercises involve consideration of the potential economic impacts and policy response. (Paragraph 216)

We are concerned that it appears that Government records, held on the phone of the Treasury’s Permanent Secretary, are subject to deletion based on lapses of his memory. The Permanent Secretary acted correctly in transferring messages of any substance to the official record. We recommend, however, that the Government reviews its policies and use of information technology to prevent the complete deletion of Government records by the misremembering of a password to a phone, given that this may be a wider problem. Though we have absolutely no reason to believe it in this case, the wiping of information under these kind of circumstances could have the unfortunate consequence of leading some to the suspect it to be deliberate. To be very clear, the Committee does not believe this to be the case in respect of the Permanent Secretary. (Paragraph 220)

Though we welcome the release of the redacted texts lost from Sir Tom Scholar’s phone, we find his arguments as to why only the Treasury should have released the records held by Mr Cameron unconvincing. First, these records were no longer Government records, since they had been deleted. Secondly, a Committee’s powers to call for persons, papers and records are exercised independently of the Freedom of Information Act.
(Paragraph 224)

In his evidence, the Chancellor suggested that firms may feel less able to engage with Ministers for fear of the public scrutiny brought to bear in this case. That may be a risk, and there may need to be a balancing act to ensure the free flow of information where necessary. But those approaching Government for support from public finances for policies in their personal or corporate favour should expect public scrutiny and transparency. Any other approach runs the risk of appearing to be in conflict with good governance. (Paragraph 227)

Published: 20 July 2021 Site information    Accessibility statement