Lessons from Greensill Capital Contents

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1Introduction

Background to our inquiry

Greensill Capital

1.Greensill Capital was a financial firm whose stated business was the provision of supply chain finance (SCF).1 After Alexander “Lex” Greensill started his business in 2011,2 Greensill grew quickly and since its inception had funded, according to Mr Greensill, “over 8 million suppliers in 175 countries.”3

2.During the first few months of the Covid pandemic, Greensill’s representatives lobbied for various changes to the Covid Corporate Financing Facility (CCFF) which would allow Greensill to sell its notes into the facility.4 One of those representatives was the former Prime Minister, the Rt Hon. David Cameron,5 who worked for Greensill as a paid adviser.6 Ultimately Greensill did not secure access to the CCFF, but it did benefit from the use of loan guarantees provided through the Coronavirus Large Business Interruption Loan Scheme (CLBILS).78

3.In March 2021, Greensill was placed into administration.9 Subsequent revelations about Greensill’s lobbying activities and its use of CLBILs raised questions around its regulation and what lessons there might be in this respect. Questions were also raised around the Treasury’s response to Greensill’s lobbying. Our inquiry therefore contained two strands:

i)Lessons for the financial system and its regulation from the failure of Greensill Capital, and

ii)Lessons for HM Treasury (and its associated public bodies) from its interactions with Greensill Capital during the Covid crisis.

Our inquiry

4.We did not issue a call for evidence for this inquiry. But, at the outset, our Chair wrote to Mr Cameron, the Bank of England, the Financial Conduct Authority (FCA), HM Treasury, and UK Government Investments (UKGI), seeking information in writing.10 The information supplied in response included extensive details of communications and meetings, and it assisted the Committee in forming a clear understanding of the chronology of events. Following oral evidence sessions, the Chair wrote a second round of letters, to Mr Greensill, to the Bond and Credit Corporation (BCC), and to Mr Cameron, seeking further information.11 We are grateful to those who spent considerable time compiling the details which we had requested.

5.We held oral evidence sessions with the following witnesses:

• 28 April 2021: Lord Myners CBE; Lord Macpherson of Earl’s Court GCB; Dr Richard Bruce, Management Accounting & Supply Chain Academic and Practitioner at The University of Sheffield; and Professor David Aikman, Director at Qatar Centre for Global Banking and Finance, and Professor of Finance (Practice) at King’s College London.
• 11 May 2021: Alexander “Lex” Greensill CBE
• 13 May 2021: Rt Hon. David Cameron
• 27 May 2021: Sir Tom Scholar, Permanent Secretary at HM Treasury; and Charles Roxburgh, Second Permanent Secretary at HM Treasury.
• 27 May 2021: Rt Hon. Rishi Sunak MP, Chancellor of the Exchequer at HM Treasury; and Charles Roxburgh, Second Permanent Secretary at HM Treasury.

We also questioned relevant witnesses during other Committee meetings:

• 12 May 2021: During a meeting on ‘Work of the Financial Conduct Authority’, we took evidence from Nikhil Rathi, Chief Executive of the FCA, and Charles Randell CBE, Chair of the FCA.
• 24 May 2021: During a meeting on ‘Bank of England Monetary Policy Reports’, we took evidence from Andrew Bailey, Governor of the Bank of England, and Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England.
• 23 June 2021: During a meeting on ‘Work of the Prudential Regulation Authority’, we took evidence from Sam Woods, Deputy Governor with responsibility for prudential regulation at the Bank of England and Chief Executive Officer at the Prudential Regulation Authority.

6.We would like to thank all those who provided oral and written evidence during this inquiry.

7.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. The report is structured as follows

• Chapter 2: Lessons for the financial system. This chapter discusses the circumstances of Greensill’s failure, and the regulatory lessons arising from that failure, as well as the use of supply chain finance in Government.
• Chapter 3: Lobbying. This chapter examines the lobbying by Greensill’s representatives of the Treasury and its associated public bodies.
• Chapter 4: Other matters raised by our inquiry. This chapter looks at other matters, including the cost to government, and questions raised about Government record-keeping.

To aid understanding we are publishing separately a chronology of the key events that we cover in this report12.

Other inquiries and investigations

8.Other investigations are under way into the events relating to the operations of Greensill, its representatives and matters relating to its failure, and broader questions around the use of supply chain finance. These include:

• An inquiry by the Business, Energy, and Industrial Strategy (BEIS) Committee into ‘Liberty Steel and the Future of the UK Steel Industry’;13
• An inquiry by the Public Administration and Constitutional Affairs Committee (PACAC) into ‘Propriety of governance in light of Greensill’;14
• An inquiry by the Public Accounts Committee (PAC) into ‘Lessons from Greensill Capital’;15
• An investigation by the Serious Fraud Office into suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance (GFG),16 including its financing arrangements with Greensill Capital UK;17
• An investigation by the FCA into matters relating to Greensill Capital UK (GCUK) and Greensill Capital Securities (GCSL) and the oversight of GCSL by its principal,18 Mirabella Advisers LLP (Mirabella);19
• An investigation by the National Audit Office (NAO) into Greensill Capital’s involvement in the Government’s Covid-19 support schemes, published on 7 July 2021;20
• An investigation by the British Business Bank into Greensill Capital’s compliance with the terms of the CLBILs scheme; pending which the guarantees extended to Greensill through the CLBILs programme are suspended;21
• A review conducted by Nigel Boardman, at the request of the Prime Minister, examining decisions taken around the development and use of supply chain finance (and associated schemes) in government, especially the role of Mr Greensill and Greensill Capital;22
• An enforcement investigation by the Prudential Regulation Authority (“PRA”) into Wyelands Bank and individuals;23
• Two investigations by the Financial Reporting Council: one into PwC LLP in relation to its audit of Wyelands Bank plc, and another investigation into Saffery Champness for its audit of Greensill Capital (UK) Ltd;
• The International Accounting Standards Board (IASB) has added a standard-setting project to its work plan on supplier finance arrangements.24

9.The Committee notes the large number of inquiries into the events surrounding the collapse of Greensill Capital. It would be an opportunity lost if the fragmented and siloed nature of these inquiries were to miss the big picture and fail to draw together appropriate conclusions.