A UK parliamentary inquiry into the Greensill scandal has concluded that the lender’s collapse in March this year does not justify regulatory reforms to the wider supply chain finance (SCF) market.

The cross-party Treasury Committee probe, launched in April, had quizzed several high-profile individuals linked to Greensill’s insolvency, including founder and chief executive Lex Greensill and former Prime Minister David Cameron, who had later become an advisor to the company.

The inquiry concludes that there are “a number of lessons for the operation of our financial system”, including urgent reforms around bank acquisitions and other regulatory arrangements, says committee chair Mel Stride.

But for the wider industry, it says: “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.”

Financial institutions providing credit to businesses do not generally need Financial Conduct Authority (FCA) authorisation because the risks are borne by investors, rather than retail depositors or consumer borrowers, the report explains.

In Greensill’s case, the report notes that the wider impact was largely restricted to investors in Credit Suisse investment funds – although German depositors lost funds held by the lender’s Bremen-based Greensill Bank.

Nick Macpherson, a former permanent secretary to the Treasury, was asked by the committee in April whether the “growth of shadow banks and the unregulated sector” could pose a systemic risk to the UK financial system.

“In the end, Credit Suisse has been taken to the cleaners,” he said. “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.”

FCA chief executive Nikhil Rathi added that commercial counterparties are expected “to make decisions for themselves”, and that he “wouldn’t jump to regulating all supply chain finance”.

Other witnesses cautious about bringing SCF under closer regulatory oversight included Bank of England deputy governor Jon Cunliffe and Treasury permanent secretary Tom Scholar.

The recommendations will come as a relief to other financial institutions and tech platforms involved in the provision of SCF, which typically involves a financial intermediary paying supplier invoices early before recovering the funds from the buyer.

“The political aspects of the Greensill saga have overshadowed the actual business of supply chain finance and how it operates,” says Sean Edwards, chairman of the International Trade and Forfaiting Association (ITFA).

“We’re heartened by the conclusion of the committee on the absence of a need for regulation and the robustness of credit risk insurance as a risk mitigation tool,” he tells GTR. “These reflect the responsible and secure nature of the industry and the techniques it employs.”

In the immediate aftermath of Greensill’s collapse, industry groups had been quick to play down the possibility of contagion risks, such as the withdrawal of liquidity or credit insurance from the wider SCF market.

The report does question the usefulness of supplier payments schemes within government, however. Prior to its collapse, Greensill had been involved in an early payment scheme for UK pharmacies, and launched a free salary advance product for health workers during the pandemic.

“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,” the committee says.

“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.”

It also says the future receivables model described by Greensill associate Sanjeev Gupta, head of the GFG Alliance network of companies, should be seen as “a significantly riskier form of lending than traditional supply chain finance and is more akin to straightforward unsecured lending”.

Gupta claims that Greensill arranged facilities where financing was provided against invoices expected to be issued in the future – in some cases from companies that were not yet customers – though Lex Greensill continues to deny that was the case.

“We are therefore left in some doubt as to how these ‘future receivables’ operated,” the committee says.