‘High level of harm’ from Greensill business model

THE business model used by firms such as Greensill Capital causes a “high level of harm” and tighter rules are needed, the City watchdog has warned.

The Financial Conduct Authority (FCA) has launched a consultation to overhaul its so-called appointed representatives regime as it seeks to learn lessons from the collapse of the supply chain finance firm advised by David Cameron.

The watchdog said it would make changes to its appointed representatives regime (AR), which allowed an unauthorised company like Greensill to conduct activities without a licence, because it was supervised by an authorised firm, known as a “principal”.

The regime was introduced in the 1980s for sole traders or small firms selling financial services such as insurance. It allowed Greensill to operate in Britain and conduct business worth millions of pounds.

The regime is also used by many peer-to-peer lending platforms. There are about 40,000 ARS under 3,600 principals in retail lending and insurance.

Some of these firms have their head office outside the UK, which the FCA said could be an attempt to access the British market without a licence.

Sheldon Mills of the FCA said: “The appointed representative model helps bring choices to consumers, but the level of harm we are currently seeing is too high.

“There are real risks of consumers being misled and mis-sold with little scope for recourse. We have already started work looking at high-risk ARS and these proposals build on that work.

“We want to ensure that principals are properly overseeing their appointed representatives.”