ALEX BRUMMER: Public needs to know how Greensill was allowed to happen

Beware the fintech scams: The public needs to know how Greensill was allowed to happen, says ALEX BRUMMER

The Greensill review by Slaughter & May lawyer Nigel Boardman is far too narrowly drawn. 

It may get to the bottom of the role David Cameron and others played in the use of supply chain finance in government but ducks issues about policing fintech firms and the way in which they have fallen through the regulatory net.

Economist John Kenneth Galbraith, in his classic work, The Great Crash, warned ‘Beware of the bezzle’ – hucksters riding the wave of booming markets, and Greensill fits that pattern.

The Greensill review may get to the bottom of the role David Cameron and others played in the use of supply chain finance in government but ducks issues about policing fintech firms

There is such a drive in the UK to back fintech, a terrific growth opportunity for the City post-Brexit, that judgement among the key UK regulators at the Bank of England and the Financial Conduct Authority (FCA) has been warped.

As the Institute for Government has noted, three basic questions must be asked about ‘new’ financial ideas: How are the funds raised? How are they invested? How are risks managed?

In the case of Greensill, none of these issues was raised by regulators. One of the few people alive to a scam was former City Minister Paul Myners who was at the heart of the Government response to the 2007-09 financial crisis.

As early as June 2019, Myners urged UK financial regulators to probe the GAM Greensill Supply Chain Finance fund after its stock plunged by half. 

This followed whistleblowing over £550million of bonds held in Sanjeev Gupta’s GFG Alliance where the principal financier was Lex Greensill.

If ever there was an early signal of trouble in the Greensill house of cards, it should have been this. As we know from the London Capital & Finance scandal, the FCA defines its responsibilities by drawing a distinction between what is on the periphery of its rules and what is outside.

Only a small part of Greensill’s activities fell directly within its purview and supervision was farmed out to custodians Mirabella ACA. 

Regulators with a decent intelligence network should have been onto the early problems like a flash.

Greensill HQ in Covent Garden is in the backyard of the FCA and the Bank, and the Gupta industrial empire employed 5,000 people in the UK and 50,000 worldwide. 

Gupta’s industrial combine is now unravelling in plain sight with several of the 17 or so operating entities in the UK seeking insolvency protection.

The reverberations of the debacle have been felt in Switzerland, Germany and Australia as well as Whitehall. This is an imbroglio hatched in the UK, which is the main locus of Greensill and Gupta’s operations.

Irrespective of whether David Cameron and Whitehall were bamboozled, the FCA and Bank of England should be pressing the Treasury for a wider investigation. 

The public needs to know how Greensill was allowed to happen, and be alive to the risks in untrammelled and unregulated fintech.

Digital champ

Ken Murphy has had a baptism of fire as chief executive of Tesco.

The pandemic transformed the company’s model overnight, requiring it to take on a veritable army of new staff and to scale up its online and click-and-collect models. 

It proved an all-consuming and expensive task, soaking up some £900million of expenses.

The grocery chain, which championed the superstore in Britain and was once accused of concreting over the countryside, saw sales jump 77 per cent, winning a 35 per cent share of the online grocery market.

High-tech rival Ocado lost online customers in the pandemic but allowed them to build up the value of shopping baskets.

Tesco chose a different route of restricting customers to deliveries in the £90 to £100 range but the number of people it served surged.

The question for Murphy is to decide how permanent the change is going to be. He plans to address digital demand by opening six or so urban high-tech warehouses, starting in West Bromwich in the Midlands, mainly on existing superstore sites.

Murphy thinks that local shopping will remain popular and plans to ‘in-fill’ with extra shops where coverage is thin on the ground. He remains committed to central Europe even though sales in the pandemic were outpaced by the UK and Ireland.

In spite of Tesco’s increasingly online guise, investors show little faith and shares have stagnated. On current tech valuations, its digital operation alone could potentially be worth £50billion.

There’s a thought.