Greensill business model is causing a lot of damage, says the British watchdog
Appointed agents represent high harm – FCA
There are roughly 40,000 ARs in financial services
Principals could be faced with capital requirements
LONDON, December 3 (Reuters) – The business model of the collapsed supply chain finance company Greensill Capital is causing "high damage" and stricter rules are required, the UK's financial regulator said on Friday.
The watchdog put forward proposals for a public consultation to apply the lessons learned from Greensill, which collapsed in March, causing investors to lose around £ 1 billion.
The FCA said it will make changes to its Appointed Representative (AR) regime, which allows an unauthorized company like Greensill to conduct activities without a license because it is overseen by a principal, which is an authorized company.
The regime was originally introduced in 1986 for sole proprietorships or small businesses selling services such as insurance and allowed Greensill to operate in the UK without a license to do multi-million pound business. Continue reading
There are approximately 40,000 ARs among 3,600 principals in the retail lending and insurance business. Some ARs are headquartered outside of the UK, which could be an attempt to access UK markets without a license, the FCA said.
"The representative model appointed is helping consumers make choices, but the extent of the harm we are seeing right now is too high," said Sheldon Mills, executive director of consumer and competition for the FCA.
"There is a real danger that consumers will be misled and sold incorrectly without recourse to recourse."
Around 60% of the complaints processed by the Financial Services Compensation Scheme (FSCS) concern clients and ARs.
FCA AR graphics
The FCA said damage results from the failure of principals to adequately examine ARs before adopting and then overseeing them.
The watchdog suggested that clients provide the FCA with far more detailed information on the regulated and unregulated activities, revenue, and complaint history of an AR.
The rule change applies to existing and new ARs.
The FCA is also looking into whether companies that host ARs should hold more capital, as some have hundreds or even thousands of ARs. There could also be a size restriction or even a ban on some ARs.
The FCA is already investigating Greensill Capital and its main company Mirabella Advisers LLP as part of a global regulatory investigation.
Reporting by Huw Jones; Editing by Rachel Armstrong and Jason Neely
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