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U.K. Orders Review of Bank Rules After Greensill Criticism

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(Bloomberg) --

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The U.K. government is looking at strengthening financial rules criticized by a report into Greensill Capital’s collapse.

Chancellor of the Exchequer Rishi Sunak said in a letter to the Treasury Committee that his department had started to review the appointed representatives regime.

The Treasury “will consider legislative reforms that may be necessary to strengthen the oversight of appointed representatives and to prevent opportunities for abuse of the system,” Sunak wrote to the committee, whose report published in July said the current rules were being used “well beyond” their original purpose.

A Greensill subsidiary piggybacked on the regulatory license of an unrelated firm through the appointed representatives regime, which was originally designed for sole traders. This meant that a private firm was responsible for ensuring that Greensill adhered to U.K. regulations, rather than the Financial Conduct Authority.

Potential reforms to the change in control rules are also underway, with the Treasury working with the Bank of England and FCA to ensure existing banks are kept away from owners who wouldn’t be given banking licenses in their own right.

Failed Unicorn

Greensill Capital collapsed in March in one of the most spectacular financial blowups of recent years, sending shock waves through European finance and sparking at least 10 investigations and inquiries in several countries. The firm, founded by Lex Greensill, filed for insolvency after an insurance partner didn’t renew coverage on loans Greensill made to key customers.

The firm, with the backing of SoftBank Group Corp. and General Atlantic LLC, went from a small startup to a tech unicorn with an estimated $7 billion valuation at one point. David Cameron, the former U.K. Prime minister, was an adviser to the firm and has faced criticism for his well-paid role at the company.

Sunak defended his department’s handling of Cameron’s lobbying, saying it didn’t cause the Treasury to behave any differently. “Greensill and supply chain finance did not take up a very significant part of my time,” he said.

He also brushed off the committee’s calls to expand the rules on securitized loans to cover more supply-chain finance. He said there was no evidence of systemic risk, while reforms “could negatively impact businesses’ abilities to access finance.”

(Adds background on Greensill, detail on securitized loans from fourth paragraph.)

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