UK financial watchdog tightens rules used by Greensill Capital

By Huw Jones

LONDON (Reuters) – Britain’s financial watchdog tightened its rules on Wednesday for a business model used by thousands of companies, including collapsed supply chain financing firm Greensill Capital, in a bid to crack down on mis-selling and fraud.

Greensill filed for insolvency in 2021 after using Britain’s “appointed representative” or AR regime, which allows a company without a Financial Conduct Authority (FCA) licence to conduct regulated activities if supervised by a “principal” or authorised firm.

Following Greensill’s demise, lawmakers asked the FCA and finance ministry to tighten the rules.

There are currently around 3,400 principals with around 37,000 ARs, the FCA said.

“While some principals do this effectively, many do not adequately oversee the activities of their ARs,” it added.

Originally introduced in 1986 for sole traders or small firms selling services like insurance, Greensill used the regime to conduct business worth millions of pounds without direct supervision from the FCA.

Under the tougher rules which come into effect on Dec. 8, principals will have to provide more detailed information about ARs and accept more responsibility for them.

Principals will have to assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business, the FCA said.

Principals will also have to review information on their ARs annually, notify the FCA of future AR appointments 30 calendar days before they take effect, and provide complaints and revenue information for each AR to the FCA on an annual basis.

ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme, and generate up to 400% more complaints than other directly authorised firms, the FCA said.

The watchdog is also discussing with the finance ministry whether legislative changes were needed to the regime.

The FCA put out its proposals to public consultation last year, saying ARs were causing harm to customers.

Greensill was supervised by Mirabella Advisers LLP, which is being investigated by the FCA as part of a global regulatory probe. The watchdog declined to comment on the investigation.

(Reporting by Huw Jones; Editing by David Holmes)