Lessons from Greensill Capital Contents

2Lessons for the financial system

Greensill Capital and Supply Chain Finance

Supply chain finance

10.Greensill Capital’s stated business was the provision of supply chain finance. The Bank of England provided us with an explanation of supply chain finance (SCF), as follows:

SCF is a form of short-term business finance where the future payment obligations of a buyer (typically a large corporate) are transferred to a finance provider in return for that finance provider paying the supplier up front (typically less a haircut25). The finance provider receives the payment from the buyer at a future date. The finance provider is therefore taking a primary credit exposure to the buyer, which frequently is investment grade. SCF is one of a range of financing options that SMEs can use to meet their short-term liquidity needs, with the majority of the funding coming from banks.26

11.We also heard that the value of supply chain finance is driven in part by the fact that bills are paid late. Dr Richard Bruce told us:

[…] in an ideal world we would not have any of this, everyone would pay their bills on time and it would be fine, but we have created a situation that relies on this low-cost finance […]27

Accounting for supply chain finance

12.As we note in Chapter 1, the International Accounting Standards Board, in June 2021, “decided to add a narrow-scope standard-setting project to its work plan on supplier finance arrangements.”28 The Board, at that June meeting, “tentatively decided that the project would develop disclosure requirements for supplier finance arrangements, but not go beyond such arrangements (that is, the project would not develop requirements for arrangements an entity enters into to fund either receivables from customers or inventories).”29

13.This question about how supply chain finance transactions appear on a firm’s accounts has concerned Parliament before. As the joint Report from the BEIS and Work and Pensions Committees noted on Carillion, a major UK multinational construction and facilities management company which entered compulsory liquidation in January 2018:

Two major credit ratings agencies, Moody’s and Standard & Poor’s, claimed that Carillion’s accounting for their early payment facility (EPF) concealed its true level of borrowing from financial creditors. They argue the EPF structure meant Carillion had a financial liability to the banks that should have been presented in the annual account as “borrowing”. Instead Carillion choose to present these as liabilities to “other creditors”. Moody’s claim that as much as £498 million was misclassified as a result, though Carillion’s audit committee papers show the actual figure drawn was slightly lower at £472 million.30

14.In its written evidence, the Bank of England told us that when it was considering a late proposal from Greensill for its inclusion in the CCFF (see Chapter 3), “The accounting treatment of SCF by the buyers” was one of the issues identified with that proposal.31 When we asked the Treasury whether the accounting treatment for supply chain finance needed to change, given the problems at Carillion, Sir Tom Scholar, Permanent Secretary to the Treasury, told us:

It is a very fair question. Obviously, accounting standards are set by independent accounting standard setters. It is a very fair question, which I am sure they will look at, about a practice that, as Charles [Roxburgh] says, has a long history and in some circumstances makes good sense for a company. You can think of cases, and you have given an example, where it is pushed to an extreme and then the interaction of that with the accounting standards can cause a problem. It is a very fair question.32

15.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.

Greensill’s funding model

16.Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, told us that “[…] the majority of this sort of finance [SCF] is still done by banks, not players that securitise the assets in the market.”33 In a paper shared with the Bank of England, Greensill said that it “[…] was first to take a traditionally bank-only product and open it up to the capital markets.”34 Unlike most other providers operating in the UK, Greensill primarily funded its operations from outside investors.35 The Bank of England has described Greensill’s funding model as “complex” and as having “non-standard features”.36

17.Greensill issued secured commercial paper37 via a Special Purpose Vehicle (SPV) registered in Luxembourg.38 The FCA provides a definition of an SPV as a legal entity explicitly established for the purpose of securitising assets.39 Greensill packaged up individual invoices into notes that were purchased by Greensill’s investor base.40 Some of these assets were purchased by outside investors, for example a fund managed by Credit Suisse. Others were bought by Greensill Bank,41 a bank owned by the Greensill Group which was domiciled in Germany.42 Greensill’s reliance on investor funding made it vulnerable to a contraction in the supply of such funding.43

18.The diagram below, based on a similar diagram in the Notice of Administrator’s Proposals,44 sets out the Greensill funding model:

19.Securitisation is a process by which assets are sold to a special purpose vehicle (SPV) in return for immediate cash payment; and that vehicle raises its funds to make that payment through the issue of debt securities.46 Such SPVs are designed to be “bankruptcy-remote”, which is to say that if the originator (in this case Greensill) were to be liquidated, that would not impact on the assets and their income stream in the SPV.47

20.Securitisation in the UK is subject to the Securitisation Regulation,48 which “outlines the general requirements for all securitisations, as well as the criteria and process for designating certain securitisations as simple, transparent and standardised.”49

21.We heard from Nikhil Rathi, Chief Executive Officer of the FCA, that Greensill’s business was not reported under the Securitisation Regulation:

In this specific case, there were no securitisations reported under the securitisation regulation; they were framed as commercial earnings, to the best of our understanding at this point.50

Sam Woods, Deputy Governor of the Bank of England, said:

As I understand it, the securities issued by Greensill to these funds were not considered—this is a rather extraordinary thing to say, in a way—securitisations under the securitisation regulation because there was no tranching of risk. That meant that the various protections that would apply under that regulation did not apply under the law. I am not very close to that because it is more on the FCA’s side of the fence, but, to be honest, that does seem a bit bizarre. That is one thing worth looking at.51

22.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.

“Prospective receivables” or future receivables

23.Another reported feature of Greensill’s business model which differed from the standard model of supply chain financing was the lending against “prospective receivables”. This has been described as a form of financing where funds are extended, but instead of being based on an invoice for a specific purchase, they are based on an expectation that some future invoice could potentially be issued. Sanjeev Gupta, of the GFG Alliance,52 which Mr Cameron described as “a significant customer of Greensill”,53 described this financing in a letter to the Financial Times:

As has already been reported in the press, many of Greensill’s financing arrangements with its clients, including with some of the companies in the GFG Alliance, were “prospective receivables” programmes, sometimes described as future receivables. As part of those programmes, Greensill selected and approved companies with whom its counterparties could potentially do business in the future. Greensill then determined, at its discretion, the amount of each prospective receivables purchase and its maturity.54

24.In oral evidence, Mr Greensill told us that he had “never heard of the concept” of prospective receivables, and that it would not appear in any of the documentation relating to Greensill facilities.55 He said that Greensill provided “facilities with respect to future receivables”,56 and emphasised that all future receivables financing provided by Greensill Capital was “secured on real assets” except financing provided to the Government.57

25.However, when we wrote to Mr Greensill seeking further information, he declined to explain to us precisely what “future receivables” are, and if or how they differ from Mr Gupta’s description of “prospective receivables” in his letter to the Financial Times. Mr Greensill said:

The term “prospective receivables” is unknown to Greensill Capital and does not appear in any client or investor documentation ever issued by the company. Greensill Capital offered “future receivables” programmes to clients and the nature of these “future receivables” was fully disclosed to investors.58

26.We are therefore left in some doubt as to how these “future receivables” operated.

27.Peter Mulroy, Secretary General of the factoring and receivables finance association FCI, was reported in the press to have said that if Greensill was financing “future receivables that don’t exist yet”, that would be “well outside of the mainstream”. Other views ascribed in the trade media to “senior industry figures” included statements that “This is certainly not the industry norm,” and “If you try and dress up a future receivables deal as a supply chain finance transaction then basic questions will be asked and that simply won’t get past a bank’s risk committees, if it gets there at all.”59

28.Mr Greensill has shared with us a table outlining some headline figures relating to future receivables. We note that the percentage of Greensill’s total asset flow composed of future receivables grew significantly between 2018 and 2019, and as it grew Greensill switched from selling future receivables assets primarily to other investors, to instead selling them primarily to Greensill Bank, its German-domiciled bank.60

Asset Flow $m




Total Asset Flow

27, 263



Future Receivables




Future Receivables % of Total Asset Flow




Asset Distribution $m




Total Asset Flow




% sold to Greensill Bank




% sold to Other Investors




Future Receivables




% sold to Greensill Bank




% sold to Other Investors




29.“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.

Concentration risks and the GFG Alliance

30.Greensill Bank, which was domiciled and regulated in Germany,61 was asked by the German regulator, BaFin, to take action to reduce the amount of exposure that the bank held to one of its customers. BaFin proposed a concentration reduction plan in December 2020 which Mr Greensill said “was going to be impossible for Greensill to comply with”, although BaFin later agreed to an alternative proposal from Greensill to address its concentration risk.62

31.Mr Greensill told us that he was aware of his firm’s concentration risks, for both insurers and clients:

“It is the case that in a small company when you start, the first customer you do business with is, by definition, a big concentration risk. The first partner you have who provides you with services is a big concentration risk. When Greensill Capital failed we were a little over nine years old, so as we grew it is absolutely the case that we had concentrations that were unacceptably high, and we worked hard to bring those down. As I said in my opening remarks, it is the case that concentrations we had, both on insurance and clients, were too high and were the principal contributing factor to the failure of my company, which is to my very significant regret.”63

32.There was one particular concentration of risk: the relationship with the GFG Alliance. GFG Alliance is a collection of global businesses and investments, owned by Sanjeev Gupta and his family, and includes the LIBERTY Steel Group.64 Mr Cameron described the relationship between Greensill and GFG alliance as “symbiotic”.65 Mr Cameron also told us that:

I was aware throughout my time at Greensill that the concentration of loans to GFG was an issue for the business. It was, for instance, discussed at Board meetings. Such discussions started before 2020 and this topic regularly came up at meetings. My understanding was that it was being actively managed and dealt with by the company appropriately and there were plans in place to reduce the concentration over time.66

33.The Serious Fraud Office is conducting an investigation into suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the GFG Alliance, including its financing arrangements with Greensill Capital UK.67 We have been told by the Bank of England that it informed the National Crime Agency and the Serious Fraud Office of concerns around Wyelands Bank, a member of the GFG Alliance, in October 2019 and February 2020 respectively.68 We await with interest the outcome of the investigation by the Serious Fraud Office.

The failure of Greensill Capital

34.Mr Greensill explained to us the circumstances which led to the failure of his firm:

The reason that Greensill ultimately failed is that a material portion of our funding is provided by investors who require insurance, together with the asset that they purchase, to protect them against the default of the underlying receivables. Our principal insurance provider decided not to renew their insurance, despite being in discussions around renewing their insurance up to the hours before, ultimately, Credit Suisse determined that they would no longer fund our business, which was roughly a week before we went into administration. It was that withdrawal of insurance capacity that resulted in our failure.69

35.On 1 March 2021, Greensill’s main UK entity, Greensill Capital UK (GCUK) lost the benefit of approximately $4.6 billion insurance cover under an insurance policy intended to cover newly originated assets. On 2 March, GCUK ceased to originate new assets. On 4 March, Credit Suisse accelerated a $140 million loan70 to Greensill’s holding company, and demanded immediate payment from GCUK, as guarantor. GCUK was unable to make this payment, and therefore this left GCUK unable to pay its debts as they fell due. On 8 March, the administrators were appointed.71

36.The FCA told us that the Credit Suisse asset management funds were “[…] qualified-investor funds (‘alternative investment funds’) and therefore not accessible to retail investors”.72 The FCA also said that the GAM funds were “[…] alternative investment funds.”73 When we asked Mr Rathi whether any packaged notes had made their way to retail investors, his answer was “not in the UK”.74

37.There was, however, greater exposure for individual depositors in Germany, where the failure of Greensill Bank AG led to calls on the German depositor protection schemes.75 There have been reports of losses to local authorities in Germany.76 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.

Regulatory failure?

38.On Greensill’s regulation, Lord Myners told us that this was a case of regulatory ‘underlap’:

This was a case of underlap. We have overlap in some cases where people are subject to multiple regulators, which can be contradictory and difficult to manage. In this particular case, in this non-banking lending segment, which has emerged after the crisis of 2008–09, we have financial institutions that are not regulated by anybody. Then you ask the question of whether it is systemically important, and the answer is that we do not need to regulate them if they are not systemically important.77

39.Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, set out some of the possible rationales for regulation:

There are many reasons to regulate, not just financial stability: There is consumer protection; there is investor protection. Greensill is regulated for money laundering and AML. Financial stability is not the only game in town, if people are worried about risk.78

40.Greensill’s activities were not regulated by either of the two main regulators, the PRA or the FCA, apart from a specific registration with the FCA in relation to compliance with anti-money laundering rules.79 As a prudential regulator, the PRA has a general objective to promote the safety and soundness of the firms it regulates.80 Prudential regulation is regulation that seeks to ensure that firms act safely and reduce the chance of getting into financial difficulty.81 This differs from the FCA’s objectives for conduct regulation, which is about ensuring that markets work well—for individuals, for businesses, and for the economy as a whole.82

41.In the UK, the Prudential Regulation Authority regulates around 1,500 banks, building societies, credit unions, insurers and major investment firms.83 PRA rules require financial firms to maintain sufficient capital and have adequate risk controls in place.84 The FCA is the prudential supervisor for 49,000 firms in the UK,85 including asset managers, investment firms, platforms and a range of infrastructure providers.86

42.Andrew Bailey explained to us in his letter:

The Greensill group sat outside the Bank’s regulatory perimeter and as such was not subject to prudential regulation by the PRA. The holding company, Greensill Capital Pty Limited, was registered in Australia, although its main operating entity, Greensill Capital (UK) Limited was incorporated in England and Wales. This operating entity did not carry out any activities regulated by the Bank under the Financial Services and Markets Act 2000 (FSMA). The group also owned a bank, Greensill Bank AG, which was domiciled and regulated in Germany and was not authorised to perform any regulated activities in the UK.87

43.The German bank was regulated by BaFin,88 and the concentration risk was identified and regulators took action to push Greensill Bank to address that risk.89 But because the UK entity wasn’t a bank, and wasn’t subject to prudential regulation, UK authorities were not monitoring the financial position of Greensill and the risks it was running.90

44.GCUK is registered by the FCA under the Money Laundering Regulations. However, Nikhil Rathi, Chief Executive of the FCA, explained in his letter to the Chair the limitations of that registration:

GCUK has been a registered entity, a so-called ‘Annex 1’ firm, under the Money Laundering Regulations (MLRs) since 6 May 2014. This means that the FCA was responsible for supervising it only in relation to its compliance with anti-money laundering rules. This regime is based on registration and is different from the authorisation regime under FSMA. For example, our wider conduct rules do not apply to these firms, nor are customers able to access the Financial Ombudsman Service or the Financial Services Compensation Scheme.

The wider activities that GCUK undertook were not regulated by the FCA. As you know, most commercial lending falls outside the FCA’s remit and the origination of a supply-chain finance instrument is not a regulated activity.91

Appointed representatives regime

45.Where Greensill did need to undertake regulated activities, Mr Greensill told us that his firm made use of the appointed representatives (AR) regime in order to have their own regulatory capability.92

46.An ‘appointed representative’ is a firm or person who runs regulated activities and acts as an agent for a firm authorised by the FCA, and the authorised firm is known as the ARs ‘principal’.93 Greensill Capital Securities Limited (GCSL) had a permission to deal with investments through its relationship as an appointed representative of Mirabella Advisers LLP (Mirabella).94 The FCA told us that:

A principal firm (in this case, Mirabella) is responsible for ensuring that, on an ongoing basis, its AR complies with the requirements, rules and regulations of the FCA. Mirabella is also subject to the Senior Managers and Certification Regime.95

47.Mr Greensill told us that:

[…] we fully planned and expected to move towards doing away with the appointed representative and bringing that completely in-house. Indeed, we have had discussions at board level around that over the six months at the back end of last year, but I think if you were looking to make changes, and you were asking me that question, I would say that there may well be a volume threshold limit where the appointed representative scheme should not be used. Obviously, although we started out being incredibly small in the appointed representative programme, that grew over time as our business grew. It may well be that there ought to be a threshold at which that is no longer acceptable.96

48.Nikhil Rathi, Chief Executive Officer of the FCA, told us that, in general, the AR regime had been used for more complicated areas than the regime was designed for:

[…] I certainly do not think that it would be proportionate for the FCA to supervise a sole trader that is selling insurance in its local market, or a self-employed mortgage broker working as part of a network. That is what the regime was designed for, if we look back in history to the 1980s. Where it has moved into much more complex areas—it is quite liberal, the range of activities that an appointed representative can undertake; FSMA permits a very wide range of activities, basically everything other than deposit taking and managing investments—that feels to me like we need to look much more closely at the systems of control that the principal has in place, potentially placing some restrictions on the scale of business that can be undertaken through this mechanism.97

49.Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive Officer of the PRA, said:

[…] my understanding is that it was set up in 1986 for selfemployed salespeople. It is now being used for regulatory hosting of companies like Greensill. That seems to me, again, to be quite a strange state of affairs. I would have thought that was worth a good look as well.98

50.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.

51.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.

Financial stability implications

52.The Bank of England’s financial stability objective is to protect and enhance the stability of the financial system of the UK.99 The Bank of England told us that “[…] the implications of the failure of Greensill have not posed a threat to the stability of the UK financial system or to the safety and soundness of PRA regulated firms, and its failure has been orderly.”100

53.The Bank explained to us that there are two channels through which a firm or sector outside the Bank’s regulatory remit could become of significance for financial stability:

Regarding Greensill specifically, the Bank told us it had identified three possible channels through which Greensill could pose a risk to financial stability: losses for banks, investors and insurers; a reduction in the supply of credit to Greensill’s clients or their suppliers; or contagion in the SCF industry.102 The Bank’s analysis concluded that, “while there were likely to be implications for particular clients, these were manageable by the relevant PRA regulated firms”, and they did not find evidence of a broader disruption to corporate clients of Greensill. The Bank told us that “the effect on the real economy could be increased if there were knock-on effects on confidence or contagion”, but that “these risks have not crystallised to date.”103

54.Andrew Bailey, Governor of the Bank of England, told us in oral evidence:

I have to say to you—I said this in the letter that I wrote—that I have not yet seen evidence that there is a case for regulation on the basis of financial stability in this situation. As you know, commercial lending is not regulated. While there may well be, when the evidence is all laid out, some very difficult and regrettable practices, the fallout from the failure of Greensill is not systemic. It is not suggesting a failure of financial stability either in terms of the supply of credit to the economy or in terms of the interconnections within the financial system.104

55.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.

Trade credit insurance

56.As outlined earlier in this chapter, Mr Greensill told us that the loss of insurance cover was the ultimate cause for the failure of his firm.105 For sub-investment grade clients, trade credit insurance policies were critical to Greensill’s ability to provide financing as investors required credit insurance to protect them from default.106 Mr Greensill told us that his firm had “an over-reliance on insurance generally.”107

57.Mr Greensill indicated to the Committee that “for the credit insurance market, Covid was an extraordinarily frightening time”, and told us that:

[…] when the market turns down and the probability of defaults of businesses increases, in order for the solvency requirements of the insurer to be met, they must provide more capital, because the probability of default of the businesses they have insured goes up in a crisis. And that is what happened during Covid. So what happened was that many insurers either needed more capital to provide the same amount of cover or needed to cut cover in order to fit within the limited amount of capital that they had.108

58.We wrote to Bond & Credit Co (BCC), the insurance broker owned by Tokio Marine and which in March 2021 withdrew the insurance cover which it had been providing to Greensill, to ask for their views. BCC told us that general market conditions were not a significant factor in taking the decision regarding coverage for Greensill. It said:

[…] BCC and TMNF [Tokio Marine & Nichido Fire Insurance Co. Ltd (TMNF) i.e. Tokio Marine] did by July 2020 and continuing through the remainder of 2020 start to develop particular concerns about Greensill which made them very reluctant to provide any cover.109

59.Mr Greensill also told us that a “long list” of non-financial companies had been put out of businesses by credit insurers responding to economic conditions:

[…] one of the real lessons from the failure of my firm and the impact it has had on the 1,200 employees that we had, is that a heavy reliance on trade credit insurance is dangerous. I urge you and the Committee to consider the manner in which that is regulated, because it is fundamentally [procyclical]110 in its behaviour. There is a long list of companies—not financial institutions like mine—here in the UK that have been put out of business by credit insurers making changes that are driven by the turn of the economy, which of course is what happened when Covid broke out last year, and obviously had an unprecedented impact on our economy.111

60.However Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, told the Committee:

It is of course true that capital requirements for insurance companies in the UK, the rest of the EU and Australia tend to react to the risk environment around them. When risks go up, they can go up. The reason that insurance is withdrawn is very rarely that; indeed, it never is, in my experience. It is the fear of loss.

I think that was the case here. My understanding is that Tokio Marine had a look at what was going on in the Bond and Credit Company in Australia, decided it did not like the look of it—it has been reported that one of the underwriters exceeded its limits; I have no way of verifying that—and pulled the plug. It is pretty obvious that that is what happened.112

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

Regulatory perimeter

62.Financial firms offering credit to businesses generally do not need to be authorised by the FCA, unless their customers are sole traders, partnerships with fewer than four partners, or unincorporated associations.113 Given this status quo, witnesses were generally cautious regarding the prospect of bringing supply chain finance, a form of commercial lending, into the regulatory perimeter.114 Lord Macpherson told us:

We need to be careful, though. I have one word of warning. In the end, Credit Suisse has been taken to the cleaners. I recognise that there are people whose businesses depended on this finance, and that is important, but commercial lending generally has not been regulated in the same way as the retail sector. Fundamental for that is caveat emptor [buyer beware]. If investors lose a whole lot of money, well, more fool Credit Suisse.115

63.Nikhil Rathi, Chief Executive Officer of the FCA, said:

Broadly speaking, commercial lending between large wholesale counterparties has been outside the regulatory perimeter. The broad thinking has been that the commercial counterparties are able to make decisions for themselves.

[…] I wouldn’t jump to regulating all supply chain finance. I mean, bank credit insurance is in very large sectors of the global economy, touching a whole range of businesses and bringing them into financial regulation, when actually they are often just straightforward commercial transactions between counterparties in different parts of the world. I think that would be a very big step.116

64.The Chancellor of the Exchequer told us:

In our approach to financial services regulation, what are the things that we really want to regulate? Primarily, it is banks, because they take deposits and make loans to consumers. They are an important part of the financial system. Then you want to regulate things that involve customers at a retail level. Those are the things that are of particular importance. Typically, business-to-business lending is not a regulated activity. Again, that is a longstanding feature of the system when you are balancing consumer protection with costs on businesses and the cost of the product. We regulate very small business lending—it comes under the Consumer Credit Act—which is why we had to make some tweaks to bounce back loans in order to make them possible, because we normally regulate lending below £25,000.

That is the general thing. On supply chain finance in particular, it is not a regulated activity in the US, in Australia, in Canada or in most large EU states. We are not out of line in treating it that way. I will wait to see what comes back from the NAO, various committee hearings and the FCA’s work, and then we will decide what we need to do. If there are lessons to learn and things that we need to take forward, I am very happy to look at that.117

65.Dr Richard Bruce, Management Accounting & Supply Chain Academic and Practitioner at The University of Sheffield, told us that “There are some very strong benefits of honourably managed supply chain finance […]”,118 and Lord Macpherson pointed out that “A lot of really small businesses rely on it […].”119 Sir Jon Cunliffe told us that he “did not see the model itself [supply chain finance] as being the problem.120 Dr Richard Bruce told us:

The point that we must not lose sight of is that the ability of AAA-rated, or better, highly credit-scored companies to enable their suppliers to be paid earlier at very low rates of interest does not just affect those companies; it affects their suppliers. The tier 2, tier 3 or tier 4 suppliers can get paid earlier, not through using supply chain finance again, but simply because the tier 1 supplier gets paid earlier.121

66.Sir Tom Scholar, Permanent Secretary at the Treasury, told us:

It can be a completely appropriate and efficient way for small businesses to get financed more efficiently than they would have if they borrowed on their own overdrafts and their own credit ratings. It can have a useful role in a world where not all bills are paid on time. It is really important in this debate about Greensill, which was doing supply chain finance in a particular way that has been shown not to have worked, that we do not discredit what is a long-established and, as you have heard from other witnesses, helpful way for small businesses to improve their cashflow.122

67.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.

Wider lessons for financial regulation

Non-bank finance

68.Greensill was a non-bank lender, providing credit in an area which was traditionally served by banks.123 Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, told us that non-bank finance “has grown enormously over the last 10 years”, and that it posed a different set of risks to banking.124

69.Professor David Aikman, Director at Qatar Centre for Global Banking and Finance, and Professor of Finance (Practice) at King’s College London, told us that this trend was a consequence of increasing capital requirements for banks:

We have seen a trend over the last 10 years of non-banks providing more credit in various fora. That is a natural consequence of some of the steps we took 10 years ago to raise capital requirements for banks; it has pushed activity into the non-bank sphere. Non-banks will have to finance this activity through some other means than deposit taking. That is their business model. That is why securitisation enters into this area.125

70.Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, said:

It is the worry that a single [non-bank failure] can deliver a hit of that size [$10 billion hit to the banking system from the failure of Archegos]. If that happened several times over, you might have a much more serious problem.126

71.Sam Woods went on to describe the Bank of England’s priorities for non-bank lending:

On the banking regulator end, within the next month we will have completed our investigation of this hedge fund blowup [Archegos]. From that will flow various bits of supervisory action and there may be policy as well. If there is policy, that takes longer because it has to be agreed in Basel, but we will be straight on to the supervisory aspect. Judging from the interest from colleagues around the world—it is of course not particularly a London issue, but London is involved—others will want to do the same.

The more difficult end, where I slightly share your frustration, if I am honest, is the oversight of the nonbank institutions themselves. It is hard work to get the global regulatory community to agree that more action needs to be taken on some of these entities. We have been pushing it from the UK end. We are making some progress, but it is not as fast as one would like. The Archegos case illustrates it perfectly. This was a New York fund, and some of the hit came into London.127

72.The Bank of England Financial Policy Committee (FPC) has done work to assess the resilience of market-based finance and the impact of market-based finance and non-banks on financial stability.128 In the Chancellor’s 2020 remit letter to the FPC, he recommended that the FPC publish a more detailed assessment of the risk oversight and mitigation systems for the non-bank financial sector by the end of 2020.129 In the 2021 remit letter, this was expected to be published in the first half of 2021.130

73.On 13 July 2021, the Bank of England published a report entitled “Assessing the resilience of market-based finance”. This included the conclusions of the joint Bank of England and Financial Conduct Authority review into vulnerabilities associated with liquidity mismatch in open-ended funds. The Bank has identified three areas of focus: reducing the demand from the non-bank financial system for liquidity in stress; ensuring the resilience of the supply of liquidity in stress; and potential additional central bank liquidity backstops for market functioning. The Bank also noted the importance of enhancing data on the non-bank financial sector, internationally and domestically, so that regulators are better able to assess the resilience of the sector and risks to it.”131

74.Nikhil Rathi, CEO of the FCA, also told us that regulators needed greater powers to collect information from firms, such as standardised reporting requirements for firms regulated under the money laundering requirements:

However, as a general point around non-bank finance, I would say that we need to have a mindset and a regulatory and legislative regime that at least allows us to get information, and get some more information. We can then take a decision, with the Government and with Parliament, as to whether more things need to come into regulation or be supervised, but I think we sometimes have a paucity of information and notification requirements.

For example, under the money laundering regulations, these annex 1 firms [such as Greensill] do not have a reporting requirement to us. We can go out and proactively ask for information, but there isn’t a standardised reporting requirement to the money laundering supervisor.132

75.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.

76.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.

Wyelands Bank and Change of Control

77.During the course of our inquiry, we also took evidence from the Bank of England on the circumstances surrounding the wind-down of Wyelands Bank. Wyelands Bank was a PRA-regulated bank which was owned by Sanjeev Gupta.133 According to its own website, Wyelands Bank is a part of the GFG Alliance, and it is managed and operated independently of Mr Gupta.134

78.The 2020 Annual Report for Wyelands Bank, published in April 2021, explained that delays in the repayments associated to the GFG Alliance were one factor in the decision to undertake a solvent wind-down:

[…] some facilities provided to customers introduced to the Bank by members of the GFG Alliance were not operating as intended, and that this was placing the Bank at risk by creating direct exposures to GFG Alliance entities. After attempting to remediate these problems, in October 2019 the Bank delivered notice to the operators of these facilities, requiring repayment by the end of the year. In the first quarter of 2020, continued delays in these repayments and ongoing concerns about the bank’s other exposures led the Bank to take steps to protect the interests of its depositors through the solvent winddown of its balance sheet, with a view to releasing sufficient funds to allow all deposits to be repaid.”135

79.Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, set out for us the PRA’s supervisory engagement with Wyelands Bank over time. He made it clear to us that the issues identified at Wyelands Bank were directly connected to its lending to other entities in the GFG Alliance:

In late 2018, we became aware that the bank had adopted a large exposures structure that seemed to us to be intended to circumvent the large exposure rules and, in effect, give it the ability to do too much lending, more than is safe, to connected members related to or part of the GFG Alliance. Having discovered that, we of course required it to be unwound and made some further investigations over the next few months. […] In September 2019, we found it necessary to use our formal powers at that point in order to ringfence the bank from the GFG Alliance precisely because we were worried about what we had discovered on the balance sheet.136

80.When we asked Andrew Bailey, Governor of the Bank of England, about the circumstances around Mr Gupta acquiring a banking licence, he told us:

[Mr Gupta] acquired [Wyelands Bank] through a change of control at the end of 2016. He met the terms for authorisation. In the lessons learned from all of this, we will go back and look at it. There have been some changes in the rules around acquisitions over recent years that have some relevance to this, but it is something we will go back to, certainly.137

81.Sam Woods gave us some more detail on how the Change in Control process had changed:

This goes back to a change that was made in 2009. When the EU Acquisitions Directive came in, pursuant to that a change was made to the way the change in control conditions in FSMA are framed. The actual conditions were left more or less the same. The conditions themselves are quite sensible. They are reputation and things of that kind.138 But the burden of proof, colloquially, I would say was reversed. Up until that point, the regulator could refuse the change in control unless it was satisfied on those various criteria. There were six of them that were listed. After that point, the regulator is only allowed to object if it has reasonable grounds based on those various criteria.

You can see that this shifts the burden back on to the regulator. That was done in an EU context because there were concerns about national regulators frustrating crossborder activity for nonprudential reasons. As we are out of the EU, I would say that we do not need to worry about that point anymore.139

Mr Woods told us that the Bank of England was raising this matter with the Treasury.140 He wrote to us and told us that

We are raising with HM Treasury the possibility of reverting the burden to the original approach, to allow the regulator to object unless it is satisfied it is appropriate for an acquisition to take place in the light of the relevant criteria. Doing so would strengthen the hand of the regulator where the position is unclear and be conducive in practice to an even more robust approach to the review of acquisitions.141

82.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.

Other regulatory lessons

83.The FCA has written to us setting out a series of further areas under consideration for regulatory or perimeter change and to which the failure of Greensill has drawn attention:

i)The appointed representatives regime [see above]

ii)Investigation and penalty powers in the event of firm failure or deregistration

iii)Criteria for fitness and propriety under the MLRs (Money Laundering Regulations)

iv)Access to UK investors through listing securities on overseas markets that are not Recognised Overseas Investment Exchanges (ROIEs) or regulated markets (e.g. in the European Union)

v)Employer Salary Advance Scheme142

84.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.

Use of supply chain finance

Use of supply chain finance in Government

85.We heard mixed evidence on the benefits of supply chain finance for government. Mr Greensill told us that supply chain finance could benefit the government, and gave three reasons: firstly, the capacity to approve invoices more promptly as “the Government do not have the capacity to approve invoices very promptly”; secondly, the capacity to save taxpayer money by having the private sector suppliers bearing the cost of paying suppliers faster, rather than the Exchequer borrowing to achieve that; and thirdly, the costs of capital faced by Government Departments being higher than the private sector provision of capital.143

86.Mr Cameron expanded on these arguments in his own evidence:

First, there is a lot of bureaucracy in government and, even with the best will in the world, sometimes early payment simply does not happen. Secondly, as I think Nick Macpherson was very clear about in his evidence to you, although the Treasury is in favour of it in theory, in practice early payment means the Treasury borrowing more money and paying more interest on it, so there is a cost. What is useful about using supply chain finance, even in the public sector, is that if you are paying big suppliers early, they pay for the benefit of that, rather than the taxpayer. I think it would be sad to rule out supply chain finance in the public sector because I think it can be very helpful for small businesses such as pharmacies, and it can actually save money for the Government at the same time.144

87.On the argument about cost of capital, Mr Greensill told us:

[…] even if you did devolve to Government Departments the authority to pay using private sector technology and just use their own cash, the reality is that that capital is charged out at a much higher cost by Departments than the private sector provides. The reason for that, as I am sure you are very aware, is that although the Treasury can borrow money very cheaply, it provides to Departments—I am not going to use the right word, I am sorry—a weighted average cost of capital, where overall the Government borrows money.145

88.Sir Tom Scholar, Permanent Secretary at the Treasury, told us he did not recognise Mr Greensill’s third argument based on the cost of capital faced by Government Departments:

I do not quite know what he meant when he said that. All I will say is that, as we now know, he spent several years in the Cabinet Office trying to encourage Departments to adopt supply chain finance as a way of funding part of what they were doing. Most Departments looked at that and could not see the logic or the sense in it. The Treasury certainly could not, so he has not been very successful in persuading people of his point of view.146

89.Sir Tom Scholar also told us that the Treasury had a sceptical approach to supply chain finance proposals in Government:

A couple of years ago, the Treasury wrote to all accounting officers, drawing particular attention to supply chain finance and similar proposals, and saying that, in many or probably most cases, they would be unlikely to meet the standards of Managing Public Money. The Treasury has had, institutionally, a sceptical approach to them.147

90.The Chancellor, while noting he had not been around for the original proposal’s sign off, agreed with the views given by Sir Tom Scholar:

I share Tom’s view that, instinctively, this should not be something that is massively necessary in the public sector, for the reasons that Tom gave. Our cost of borrowing is low and is going to be cheaper than the private sector, and we are a prompt payer. That is where the Treasury’s scepticism towards these things would have come from, and that is based on a sound rationale.148

91.Nigel Boardman’s review is looking at the use of supply chain finance in Government and was due to have reported to the Prime Minister by 30 June 2021.149 We look forward to the publication of his review.

92.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.

Pharmacy Early Payment Scheme (PEPS)

93.Greensill had two major public sector schemes. Firstly, Greensill provided the financing for the Pharmacy Early Payment Scheme (PEPS), a scheme which allowed pharmacies to access funding earlier. The Chancellor told us:

The scheme was introduced by DHSC in 2013. It was to be delivered by Citibank, and was a voluntary scheme that would allow participating pharmacies to access funding earlier than the standard government payment schedule but after services had been delivered. HMT ministers approved the initial PEPS. In 2018, Taulia replaced Citibank as the provider of this service. Taulia contracted Greensill to provide the financing necessary for the scheme. HMT has no record of involvement in this process. NHS Business Services Authority contracted with Taulia in 2018 via a Crown Commercial Service Framework agreement for Supplier Early Payment Solutions.150

94.Lord Macpherson explained the rationale for this scheme:

My understanding is that there is a general pressure to make the NHS pay pharmacies more quickly. The Government responded to that and brought forward the payment terms. Historically, I think most of the payments were done within 60 days, some within 90 days, and they brought all that forward.

You would think that, with accruals accounting, this would have no impact, but, as far as the national debt is concerned, debt is accumulated in cash and the debt interest is in cash. If you bring forward payments, the Government have to borrow more and, therefore, pay interest on that debt. That is why, it is fair to say, the Treasury was a bit cautious back in 2012 about bringing forward payment terms too quickly.

At this point, Citibank turns up in the Cabinet Office. […] What was attractive to the Cabinet Office and the Department of Health is that this was effectively a private sector intervention. Citibank would provide even earlier payments, voluntarily, to pharmacists, in exchange for the pharmacists giving up, say, 1% of the income, which actually was in a lot of their interest, because they were being paid so late that the cost of capital of that delay was something like 12%.151


95.Secondly, Greensill owned a firm called Earnd, which provided a service that allowed employees of customers of Earnd UK to draw accrued salary (advanced by Earnd UK) prior to the regular payroll date. The amount advanced by Earnd UK was then deducted from the relevant employee’s salary and repaid from the employer to Earnd UK within a contracted period.152 Employee Salary Advance Schemes (ESAS) are not regulated by the FCA.153

96.Greensill provided Earnd to some NHS trusts for free.154 Mr Greensill told the FCA they were able to do this “as they already [were] making a lot from NHS contracts.”155 The Administrator’s Proposals156 set out the rationale for Earnd providing these services for free:

Earnd UK was a start-up company incorporated in May 2018 and, at the time the Companies157 were placed into administration, did not generate revenue as the service was provided at nil cost to the employee and employer. The commercial rationale for providing these services without profit was to create critical mass to enable Earnd UK to sell to corporate entities to generate revenues and to provide cross-selling opportunities to the wider Group. The customers of Earnd UK included certain NHS Trusts.158

When asked about the data collected by the Earnd app, the Treasury pointed us towards the NHS.159

97.Mr Cameron told us:

[…] I remember answering questions […] about the evils of payday lending, and the idea that staff in the NHS can draw down their salary as they earn it, rather than having to wait till the end of the month, I think could go some way to ending the use of payday lending.160

98.The Chancellor provided us with more detail as to what the Treasury had been told about Earnd:

Regarding Earnd, the decisions to offer this product to NHS workers were made at an individual foundation trust employer level. We have no record of HMT approval being sought as part of that process, and we have no record of HMT undertaking any advice or analysis relating to the Earnd product.161

99.Sir Tom Scholar, Permanent Secretary at the Treasury, told us that the lack of discussion with the Treasury by these NHS Trusts or the Department of Health was something he was now following up on:

It was a handful of NHS trusts that took part in this scheme, in a fairly small-scale way. They did not come to the Treasury for approval. I do not quite know the extent of the discussion within the NHS, and between the NHS and the Department of Health, but they did not come to us about it. As you would imagine, we are now following that up with the Department.162

100.Sir Tom Scholar told us that:

Managing Public Money163 requires Treasury consent for proposals for spending money that are novel, contentious or potentially repercussive. We wrote round to all accounting officers a couple of years ago, drawing attention to those requirements, particularly in the context of supply chain finance.164

101.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.

25 In financial markets, a haircut refers to a reduction applied to the value of an asset. See European Central Bank, ‘What are haircuts?’ accessed 30 June 2021

28 Supplier Finance Arrangements,” IFRS Foundation, accessed 13 July 2021

29Supplier Finance Arrangements,” IFRS Foundation, accessed 13 July 2021

37 Generally, commercial paper is defined as an unsecured, short-term debt instrument issued by a company. See Bank of England, ‘Covid Corporate Financing Facility,’ accessed 30 June 2021

39 Financial Conduct Authority, ‘Special purpose vehicle’, accessed 30 June 2021

44 The Notice of Administrators Proposals is a document submitted by the Administrators, in this case Grant Thornton, to Companies House. This document meets the administrators’ statutory duty to report to creditors of the insolvent company, setting out their proposals for achieving the purpose of the administration, and information relating to the insolvent firms such as assets and liabilities. Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 3

45 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 3

47 HMRC, ‘Corporate Finance Manual,’ accessed 30 June 2021

48 The EU Securitisation Legislation came into effect in the UK on 1 January 2019, and was converted into UK law on 31 December 2020 by the EU (Withdrawal) Act 2018. Financial Conduct Authority, ‘Securitisation,’ accessed 02 July 2021

49 Financial Conduct Authority, ‘Securitisation,’ accessed 02 July 2021

52 The GFG Alliance is a collection of global businesses and investments, owned by Sanjeev Gupta and his family. GFG Alliance, ‘About us,’ accessed 21 June 2021

57 Q159

64 GFG Alliance, ‘About us,’ accessed 21 June 2021

67 Serious Fraud Office, ‘SFO confirms investigation into Gupta Family Group Alliance,’ accessed 21 June 2021

71 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 1, p 5

79 Response from the FCA to the Committee, dated 4 May 2021, Response from the Bank of England to the Committee, dated 6 May 2021

80 Bank of England, ‘Prudential regulation’, accessed 28 June 2021

81 Bank of England, ‘What is the Prudential Regulation Authority (PRA)?’, accessed 28 June 2021

82 Financial Conduct Authority, ‘About the FCA’, accessed 28 June 2021

83 Bank of England, ‘Which firms does the PRA regulate?’, accessed 28 June 2021

84 Bank of England, ‘Prudential regulation’, accessed 28 June 2021

85 Financial Conduct Authority, ‘About the FCA’, accessed 28 June 2021

86 Financial Conduct Authority, ‘Overview of the FCA prudential approach,’ 21 May 2015

90 Response from the FCA to the Committee, dated 4 May 2021, Response from the Bank of England to the Committee, dated 6 May 2021

93 Financial Conduct Authority, ‘About the FCA’, accessed 07 July 2021

106 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 3

110 Mr Greensill said “counter-cyclical” in evidence, but from context it is clear that he intended to say “pro-cyclical”. The term “procyclicality” is generally used to refer to the mutually reinforcing (“positive feedback”) mechanisms through which the financial system can amplify business fluctuations and possibly cause or exacerbate financial instability. These feedback mechanisms are particularly disruptive and apparent during an economic downturn or when the financial system is facing strains.[…] As a result, the system acts as a shock amplifier rather than playing its usual shock absorber role. Bank for International Settlements, ‘Addressing financial system procyclicality: a possible framework’, (1 September 2008), p 1

113 Gov.uk, ‘Offering credit to consumers: the law,’ accessed 02 July 2021

114 A previous Treasury Committee had concerns around corporate lending in the context of lending to SMEs. In October 2018, this Committee published a report on SME Finance which concluded that the Treasury and the FCA should bring some commercial lending within the regulatory perimeter in order to protect Small and Medium Enterprises (SMEs). Treasury Committee, Twenty-Fourth Report of Session 2017–19, SME Finance, HC 805, para 85

128 Bank of England, ‘Financial Stability Report August 2020,’ (August 2020)

131 Bank of England, Assessing the resilience of market-based finance, 13 July 2021

134 Wyelands Bank, ‘Our history,’ accessed 24 June 2021

135 Wyelands Bank Plc, Annual Report 2020, (26 May 2020), p 3

138 Any objection to an acquisition must be based on six criteria relating to: the acquirer’s reputation and financial soundness; the reputation, knowledge, skills and experience of the firm’s directors; the firm’s ongoing ability to meet prudential requirements and threshold conditions; the impact of any change of the firm’s group on supervision; and the risk of money laundering or terrorist financing. Letter from Sam Woods to the Committee, dated 02 July 2021

152 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 4

154 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 4

156 The Notice of Administrators Proposals is a document submitted by the Administrators, in this case Grant Thornton, to Companies House. Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021)

157 Greensill Capital UK (GCUK) and Greensill Capital Management Company (GCMC)

158 Companies House, ‘Notice of Administrators’ Proposals,’ (April 2021), p 4

159 Qq464, 618

163 Managing Public Money is a Treasury document which provides guidance to UK public sector organisations on how to handle public funds. HM Treasury, ‘Managing public money,’ (14 May 2012)

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