Greensill’s implosion does not justify regulatory reforms to the wider SCF market
On 14 July, a UK parliamentary select committee published its report on the lessons from the collapse of Greensill Capital after taking evidence from the involved parties, including founder Lex Greensill and former prime minister David Cameron, an adviser to the failed firm. The report’s conclusion was clear: Greensill’s implosion does not justify regulatory reforms to the wider supply chain finance (SCF) market.
The findings were music to the ears of supporters of SCF programmes – as after all, much of what Greensill Capital was doing was not SCF, even though it marketed itself as the poster child of SCF. But committee chair Mel Stride admitted there are “a number of lessons for the operation of our financial system,” including urgent reforms around bank acquisitions and other regulatory arrangements.
For those not up to speed with the Greensill debacle, Greensill Capital filed for insolvency in March after BCC (formerly The Bond & Credit Co), a division of Tokio Marine Insurance acquired in 2019, refused to roll over credit insurance covering billions of payables relating to 40 clients, which ultimately led to Credit Suisse suspending redemptions from its SCF funds. To date, only $3 billion so far has been returned to investors by the Swiss bank out of $10 billion in trapped funds.
According to a paper by Fitch Ratings from May, funds that invest in SCF programmes are expected to face an uncertain future, with investors’ appetite for such assets expected to wane in the wake of the ongoing scandal. This is especially the case if investors don’t have proper oversight of the assets they are investing in and continue to display an over-reliance on trade credit insurance. So promoting greater transparency in trade finance is paramount going forward.
For instance, Germany’s financial-markets regulator BaFin has filed an insolvency application for Greensill Bank, likely to set off compensation for many of the lender’s depositors; there are pending lawsuits in the US, as well as reports that if Greensill Capital’s Australian parent was trading while insolvent, it could expose the firm’s directors at the time to civil liability. And Greensill’s lending to Sanjeev Gupta’s GFG Alliance is now the subject of a criminal investigation in both Germany and the UK.
Far more going on than SCF
Industry groups hastily quashed the possibility of contagion risk in the immediate aftermath of Greensill’s collapse – for example, the withdrawal of liquidity or credit insurance from the wider SCF market.
But the committee’s report does question the usefulness of supplier payments schemes within government, however. Prior to the firm’s insolvency, Greensill had been involved in an early payment scheme for UK pharmacies last year, and launched a free salary advance product for health workers during the pandemic.
Greensill would have never had exposure to promote his products to the UK government without his role as an unpaid special advisor to the then prime minister David Cameron from 2012, which, according to an independent review, allowed him to meet potential clients, such as Vodafone.
Greensill’s extraordinary privileged access allowed him to promote a product which did not provide material benefits to the government. And so amid the public outcry over Cameron’s lobbying activity for Greensill in 2020, UK prime minister Boris Johnson commissioned senior lawyer Nigel Boardman to review Greensill’s recruitment in 2012; his role in government from 2012 to 2016, while also setting up his own firm; and his subsequent hiring of senior bureaucrats, including Cameron, as advisers.