Recommendations & Conclusions
14 items
5
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Accepted
We are concerned that the Bank’s investigation into Greensill has progressed much more slowly than we would expect given the seriousness of the potential breach. The Bank launched an investigation into Greensill on 12 October 2020, 10 days after discovering Greensill had issued seven CLBILS loans, totalling £350 million, to …
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We are concerned that the Bank’s investigation into Greensill has progressed much more slowly than we would expect given the seriousness of the potential breach. The Bank launched an investigation into Greensill on 12 October 2020, 10 days after discovering Greensill had issued seven CLBILS loans, totalling £350 million, to companies associated with the GFG Alliance. The Bank accepts that it was very surprised by these loans because the scheme rules prohibit lending to groups above £50 million. This is despite press reports in the run up to September 2020 questioning the relationship between Greensill and the GFG Alliance, culminating in the German regulator, BaFin, raising similar concerns. The Bank told us that it had explicitly communicated the group lending rules to Greensill, explaining that the lending limit would be £50 million for the whole group, not per subsidiary.1 In October 2020 the Bank instructed Ernst & Young (EY) to examine all eight of Greensill’s CLBILS loans. This work was completed by March 2021 with the Bank provisionally concluding that Greensill was in breach of the scheme rules. The Bank informed Greensill of its provisional findings and that it was suspending the government guarantee for these loans on 2 March 2021, five months after the loans were made. While the Bank initially acted quickly when it suspected Greensill had breached the scheme rules, the investigation is still ongoing, over a year later. The Department and the Bank assert that there is no real benefit in rushing this process in order to ensure they could not be challenged on any of the steps that were taken. Until this investigation concludes, uncertainty over the risk to taxpayer’s money remains, with the ultimate decision on whether Greensill breached the rules likely to be made in the courts. Recommendation: The Bank should complete its investigation as soon as possible and inform the Committee, as a matter of urgency, when it expects to do so. It should write to the Com
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Government response AI summary
The government agrees with the recommendation, stating the Bank has already informed the Committee of the expected completion timeframe (early months of 2022) for its Greensill investigation and will inform them again upon conclusion.
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HM Treasury
7
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Accepted
Government has not yet identified the lessons it will take from its accreditation of Greensill or from its COVID-19 business support schemes. Our work over the last 18 months has shown that the scale and nature of the COVID-19 pandemic and the government response are unprecedented in recent history and …
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Government has not yet identified the lessons it will take from its accreditation of Greensill or from its COVID-19 business support schemes. Our work over the last 18 months has shown that the scale and nature of the COVID-19 pandemic and the government response are unprecedented in recent history and there is much that government can learn to improve both its ability to respond to emergencies and its business-as-usual service delivery. The Bank’s accreditation of Greensill has highlighted wider lessons about Government’s response to the pandemic, including the need to balance delivering at speed with managing risk, which we have previously reported on. The Bank intends to evaluate its COVID-19 business support schemes to determine whether there are lessons it can learn. It accepts that discussions with international counterparts that have been delivering similar schemes, such as development banks, would be a fruitful theme. The Treasury and the Department similarly intend to review the results of the various inquiries on Greensill’s interaction with Government before drawing any conclusions. However, Government is yet to set out its plans for identifying and applying the lessons in order Lessons from Greensill Capital: accreditation to business support schemes 9 to prevent another situation like Greensill from occurring and improve its ability to respond to future emergencies and economic shocks. We are concerned that if Government does not swiftly formalise this lessons-learned exercise, or conduct it soon enough, it risks losing institutional memory and the necessary lessons will not be learned. Recommendation: The Treasury, the Department and the Bank should jointly work to identify the lessons that need to be learned from its COVID-19 business support schemes and Greensill’s accreditation in particular. By July 2022 they should publish a full lessons-learned report on these schemes, outlining how each lesson will be implemented. This will enable it to be bette
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Government response AI summary
The government agrees with the recommendation, committing to a multi-year evaluation of the COVID-19 loan schemes and aiming to publish a lessons-learned report by Summer 2022, with further evaluation reports released annually until 2024.
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HM Treasury
9
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
We asked the Bank how much weight it had placed on the work of others, such as Greensill’s auditors, Saffery Champness, in its decision to accredit Greensill. The Bank told us that the auditor’s opinion about the financial health of Greensill was considered as part of the accreditation process and …
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We asked the Bank how much weight it had placed on the work of others, such as Greensill’s auditors, Saffery Champness, in its decision to accredit Greensill. The Bank told us that the auditor’s opinion about the financial health of Greensill was considered as part of the accreditation process and that it placed reliance on the audited accounts.17 In June 2021, it was reported that the Financial Reporting Council was investigating Saffery Champness in relation to its audit of Greensill’s financial statements for the year ended 31 December 2019.18 We asked whether, in hindsight, the Bank should have been more sceptical in relying on assurances from Saffery Champness. The Bank told us that it considered it was “within our rights to rely on that audit” but recognised that, with a more sceptical approach, it might have come to a different outcome.19 We also asked the Bank whether it challenged Greensill on who it planned to lend to under CLBILS. The Bank confirmed that while it would not perform a credit assessment of the underlying borrowers as part of the accreditation process, it did discuss Greensill’s lending pipeline, which “appeared an appropriate pipeline”.20 However, prior to its initial accreditation, the Bank did not request the names of the individual borrowers Greensill planned to lend to. In its letter to us after our evidence session, the Bank told us that it subsequently requested this information but did not perform any due diligence on Greensill’s potential borrowers. The Bank also explained that this was the responsibility of Greensill.21
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Government response AI summary
The government states the Bank will write to the Committee by end of February 2022, detailing accreditation processes reviewed and adjusted for the Recovery Loan Scheme, and will continue to keep these processes under review for future programmes.
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HM Treasury
10
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
We asked the Bank why it had accredited Greensill despite several press reports highlighting it had a string of its clients default on their debt, potentially damaging Greensill. The Bank told us that it discussed the losses with Greensill and their potential impact on its financial position, which had provided …
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We asked the Bank why it had accredited Greensill despite several press reports highlighting it had a string of its clients default on their debt, potentially damaging Greensill. The Bank told us that it discussed the losses with Greensill and their potential impact on its financial position, which had provided “what appeared to be a plausible answer”.22 It explained that other lenders had also taken similar losses on the same 14 C&AG’s Report, paras 11, 1.13, 2.15 15 Q 33 16 Q 33 17 Qq 93–94 18 Qq 95, 121–122 19 Q 95 20 Q 39 21 Letter from the Chief Executive of the British Business Bank to the Chair, 7 September 2021 22 Q 88 Lessons from Greensill Capital: accreditation to business support schemes 13 company, so it did not feel like a Greensill-specific issue. The Bank further explained that these defaults related to problems with the underlying borrowers rather than a systemic issue with Greensill making wrong lending decisions.23 We also questioned the Bank on the risks that the German Regulator, BaFin, raised regarding Greensill’s exposure to companies within the GFG Alliance—a concern that was also raised in several press reports prior to September 2020.24 The Bank told us that the Treasury had made it aware that there were growing regulatory concerns by November or December 2020, but this was “perhaps a little late” as Greensill had made its CLBILS loans by the end of September 2020.25 The Bank also confirmed that it had been unaware that Greensill’s insurance provider, Tokio Marine, were investigating Greensill.26 We asked the Bank whether looking back with hindsight, it would have done anything differently. The Bank told us it did not think that it had missed anything based on the information available at the time Greensill was accredited, while acknowledging that “with more time and a different process” it might have uncovered something different.27 The Department’s interest in Greensill’s accreditation
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Government response AI summary
The government states the Bank will write to the Committee by end of February 2022, detailing accreditation processes reviewed and adjusted prior to the launch of the Recovery Loan Scheme, and will continue to keep its accreditation process under review for future programmes.
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HM Treasury
15
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Accepted
In early 2020, Greensill approached a number of government departments seeking involvement in various business support schemes.41 Greensill approached the Treasury and the Bank of England to access the Covid Corporate Finance Facility (CCFF) and was rejected as it was ineligible.42 The Treasury Select Committee covered Greensill’s application to the …
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In early 2020, Greensill approached a number of government departments seeking involvement in various business support schemes.41 Greensill approached the Treasury and the Bank of England to access the Covid Corporate Finance Facility (CCFF) and was rejected as it was ineligible.42 The Treasury Select Committee covered Greensill’s application to the CCFF in detail in its report published in July 2021.43 Greensill also approached UK Export Finance (UKEF) through a lender, seeking a £500 million loan supported by an Export Development Guarantee. UKEF began discussions with Greensill in late March 2020 and rejected this application in June 2020. UKEF also rejected a revised application to the same scheme in September 2020. UKEF rejected Greensill’s application as it did 34 C&AG’s Report, para 3.9 35 Q 69 36 Q 69 37 Qq 20, 71–72 38 Q 22 39 Qq 22–24, 110; C&AG’s Report, para 2.27 40 Qq 100, 10–112; C&AG’s Report, para 2.27 41 C&AG’s Report, para 1.14–1.15 42 Treasury Select Committee, Lessons from Greensill Capital: correspondence, May 2021 43 Treasury Select Committee, Lessons from Greensill Capital, Sixth Report of Session 2021–22, HC 151, July 2021 Lessons from Greensill Capital: accreditation to business support schemes 15 not feel it was sufficiently aligned with the policy intent of the guarantee. Furthermore, UKEF’s due diligence had identified media reports highlighting concerns relating to Greensill; including its governance and the level of exposure to some of its customers.44
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Government response AI summary
The government agrees with the recommendation, stating BEIS has already raised the importance of cross-government information sharing and will work with Cabinet Office and HM Treasury to develop existing processes where necessary.
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HM Treasury
16
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
We were concerned that Greensill had approached various parts of government looking for financial support, with different decision-makers arriving at conclusions in isolation and without engaging with officials in other departments. For example, the Bank told us that it was not in touch with UKEF during its accreditation of Greensill, …
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We were concerned that Greensill had approached various parts of government looking for financial support, with different decision-makers arriving at conclusions in isolation and without engaging with officials in other departments. For example, the Bank told us that it was not in touch with UKEF during its accreditation of Greensill, but that it had “looked at … and questioned” the same media reports that UKEF had identified during its due diligence.45 The Bank told us the fact that it and UKEF reached different conclusions from the same media reports reflected the different eligibility criteria of the two schemes.46 The Treasury explained that because each of the business support schemes that Greensill applied to were designed with “different objectives in mind and with different rules” and eligibility criteria, it was not surprised that different conclusions were reached.47
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Government response AI summary
The government agrees and states the recommendation is implemented. BEIS will work closely with Cabinet Office and HM Treasury to develop existing processes for sharing company information across government departments and public bodies, while respecting commercial and legal restrictions.
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HM Treasury
17
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
In May 2020, the Bank of England shared information with the Treasury that it had raised concerns with the National Crime Agency about Wyelands Bank. Wyelands Bank is a part of the GFG Alliance which was a significant Greensill client.48 The Treasury told us that information about a possible criminal …
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In May 2020, the Bank of England shared information with the Treasury that it had raised concerns with the National Crime Agency about Wyelands Bank. Wyelands Bank is a part of the GFG Alliance which was a significant Greensill client.48 The Treasury told us that information about a possible criminal investigation was “among the most tightly restricted information” in order to avoid compromising an ongoing investigation and that it was unable to share this information. It asserted that, as the information was about Wyelands bank, not Greensill, and that the former was not applying to the Bank for accreditation, it considered this “a completely separate entity and a separate exercise”.49 It explained that the Bank of England wrote to it on 15 May 2020 with “more detailed, specific information” and that it had subsequently shared this information with the Department on 19 May 2020 as it knew that the Department was in discussion with Liberty Steel, another part of the GFG Alliance, regarding a request for direct government support, and it judged that the information was relevant to those discussions.50 However, this information was not shared with the Bank, as both the Treasury and the Department deemed it not relevant to the accreditation of Greensill. The Treasury explained that it treats sensitive information about companies carefully, in order to avoid adverse impact from its inadvertent disclosure.51 We noted that the sharing of information is a critical part of protecting taxpayers’ money. We therefore asked the Treasury if, given the legislation covering the sharing of information, there was any information that it could have shared that would have been helpful to the Bank or elsewhere in government. The Treasury told us it believed that it had shared all the information it should have.52 44 C&AG’s Report, para 1.15 45 Q 139 46 Q 139 47 Q 1 48 Q 3, Treasury Committee, Lessons from Greensill Capital, Sixth Report of Session 2021–22, HC 151, 14 July 2021 49 Q 3 5
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Government response AI summary
The government acknowledges the importance of information sharing, stating that BEIS has written to the Committee, currently facilitates data sharing, and will work closely with Cabinet Office and HM Treasury to develop existing processes where necessary.
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HM Treasury
21
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
In the Letter of Concern, the Bank outlined what it considered to be breaches of the guarantee agreement. In the Letter, the Bank also suspended the guarantee while the investigation was ongoing and invited representations from Greensill.59 We asked the Bank why it had taken so long between initiating the …
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In the Letter of Concern, the Bank outlined what it considered to be breaches of the guarantee agreement. In the Letter, the Bank also suspended the guarantee while the investigation was ongoing and invited representations from Greensill.59 We asked the Bank why it had taken so long between initiating the investigation in October 2020 and issuing the first Letter of Concern in March 2021. In response, the Bank said that it was a “very complex situation” and that it wanted to ensure it “followed the process properly” before putting forward its concerns formally. The Bank acknowledged that it was possible it could have issued the Letter of Concern sooner, but it thought this was “probably unadvisable”.60 The Bank and the Department told us that they felt there was “no real 53 C&AG’s Report, paras 13, 3.4, figure 8 54 C&AG’s Report, paras 3.5, 3.9 55 Qq 75, 77–78, 90, 133, 136 56 Q 47 57 C&AG’s Report, para 3.9 58 Q 49 59 C&AG’s Report, para 3.10 60 Qq 46–47 Lessons from Greensill Capital: accreditation to business support schemes 17 benefit from rushing the process” as they wanted to be sure the decision to suspend the guarantee would not be challenged.61 Greensill’s administrators have indicated that their view is that the loans were compliant with the scheme rules, including those relating to group lending, and any decision to revoke the guarantee would constitute a breach of the guarantee agreement and Greensill would reserve the right to seek damages.62
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Government response AI summary
The government states the Bank has written to the Committee on 17 December 2021 and will inform them when its investigation into Greensill's lending concludes, expected in early 2022, prioritizing a thorough and informed decision.
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HM Treasury
22
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Accepted
The Bank confirmed that the investigation was still ongoing as it was awaiting a formal response from Greensill’s joint administrators. The Bank explained that it had agreed to extend the deadline for Greensill’s response to August 2021 because it wanted to receive a “fulsome answer” to its detailed set of …
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The Bank confirmed that the investigation was still ongoing as it was awaiting a formal response from Greensill’s joint administrators. The Bank explained that it had agreed to extend the deadline for Greensill’s response to August 2021 because it wanted to receive a “fulsome answer” to its detailed set of concerns.63 When asked why Greensill appeared to have a completely different interpretation of the scheme rules, the Bank told us that “there is always scope for a lawyer to interpret different rules and different definitions differently”.64 While the investigation is ongoing, the guarantee remains suspended until a decision is reached.65 We asked when the Bank envisaged being able to make a final decision about the suspension of the guarantee. The Bank told us that it would not be in a position to answer this until it had received a response from Greensill’s administrators, and did not provide a timeframe for how long it thought this might take.66 The Department told us that if a future call on the guarantee was made following a default from any of Greensill’s borrowers, it was important that government was clear on its rationale for suspending the guarantee. It noted that the decision on whether Greensill breached the scheme rules would ultimately be decided in a court of law.67 Lending under CLBILS and the use of funds
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Government response AI summary
The government agrees with the recommendation, confirming the Bank's investigation into Greensill's lending prioritises thoroughness over speed, and expects to inform the Committee of the outcome in the early months of 2022.
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HM Treasury
23
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
In total, under CBILS and CLBILS, lenders have issued more than 110,000 loans worth around £30 billion.68 Part of the eligibility criteria for receiving a loan included borrowers having its business activity based in the UK.69 The Treasury, which was responsible for developing the COVID-19 business support schemes alongside the …
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In total, under CBILS and CLBILS, lenders have issued more than 110,000 loans worth around £30 billion.68 Part of the eligibility criteria for receiving a loan included borrowers having its business activity based in the UK.69 The Treasury, which was responsible for developing the COVID-19 business support schemes alongside the Department, told us that the purpose of the schemes was to “support British businesses and British jobs”. It explained that it had a “central focus on ensuring these support schemes were to the benefit of the UK economy”.70
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Government response AI summary
The government states that existing scheme rules, lender processes, and the Bank's audit assurance programme, including testing UK eligibility criteria, are in place to ensure loans support UK businesses, with measures available for non-compliance.
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HM Treasury
24
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
To understand how the Bank ensures that these schemes support UK businesses, we asked about the barriers that were in place for preventing the offshoring of the taxpayer- guaranteed loans. The Bank responded that a requirement of the scheme was that “the economic benefit needs to go to the company—a …
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To understand how the Bank ensures that these schemes support UK businesses, we asked about the barriers that were in place for preventing the offshoring of the taxpayer- guaranteed loans. The Bank responded that a requirement of the scheme was that “the economic benefit needs to go to the company—a single individual borrower”. We asked the Treasury and the Bank how they could be sure that all the money from the schemes remained onshore in the UK. The Bank told us that “tracking the money is a very relevant thing that we will be looking at over time and have looked at” but provided no further details on how this took place in practice other than referring to the eligibility criteria 61 Qq 52–53, 160 62 C&AG’s Report, para 3.11 63 Qq 54, 56 64 Q 104 65 Q 85; C&AG’s Report, para 3.15 66 Qq 157–160 67 Q 79, 82, 85 68 C&AG’s Report, Figure 1 69 Press Release – April 1, 2020 – British Business Bank (british-business-bank.co.uk) Q3: ‘How do I know if I am eligible to apply?’; CLBILS FAQs – April 16, 2020 – British Business Bank (british-business-bank.co.uk) Q: ‘What sectors can access the scheme?’ 70 Q 149 18 Lessons from Greensill Capital: accreditation to business support schemes for the schemes. The Bank emphasised that it had released summary data for its loan schemes, showing the regional distribution across the UK.71 The Bank had not published equivalent data for CLBILS owing to data protection and commercial considerations.72
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Government response AI summary
The government agrees and states the recommendation is implemented, explaining that existing scheme rules require loans to benefit UK operations and the British Business Bank's audit programme already tests lenders' compliance with UK eligibility criteria.
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HM Treasury
25
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
We asked the Treasury and the Bank whether they had undertaken any analysis of how the £350 million loaned to GFG Alliance companies was used, or in which country the money was spent. The Bank told us it was aware that the loans were transferred to a “central treasury function …
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We asked the Treasury and the Bank whether they had undertaken any analysis of how the £350 million loaned to GFG Alliance companies was used, or in which country the money was spent. The Bank told us it was aware that the loans were transferred to a “central treasury function within the GFG Alliance,” but it did not know where this was based. The Bank noted that it “would imagine that the whole tracking of that money through the administration would be something being looked at” but provided no further details.73 The Bank suggested that, if the money had left the UK, this could be a relevant factor in whether the guarantee holds as this may constitute a breach of the scheme rules.74 We asked the Bank whether, at any point, it considered that Greensill might have acted fraudulently. The Bank told us there was not proven fraud at the time Greensill was accredited, although several parties raised concerns later in 2020.75 It confirmed that it was “absolutely looking” into its fraud protocols to determine whether it needed to make any changes before lending money to business in the future.76 Learning lessons from Greensill’s failure
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Government response AI summary
The government states it agrees with 'the recommendation' (though the item is a conclusion) and describes existing scheme rules for CBILS/CLBILS, lender control requirements, and the Bank's audit assurance programme to ensure compliance, implying these processes address concerns about loan usage and eligibility.
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HM Treasury
26
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Accepted
Our work on the government’s response to the COVID-19 pandemic has demonstrated that there are important lessons to be learnt to improve government’s ability to respond to future emergencies and its business-as-usual service delivery. In 2021, as part of our Initial lessons from the government’s response to the COVID-19 pandemic …
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Our work on the government’s response to the COVID-19 pandemic has demonstrated that there are important lessons to be learnt to improve government’s ability to respond to future emergencies and its business-as-usual service delivery. In 2021, as part of our Initial lessons from the government’s response to the COVID-19 pandemic inquiry, we highlighted the importance of being clear about risk appetite and risk tolerance, particularly as government was having to make decisions quickly at the start of the pandemic.77 Similarly, in our 2020 report COVID-19: Bounce Back Loan Scheme we found that the Treasury, the Bank and the Department prioritised delivery speed over all other aspects of value for money, exposing the taxpayer to potentially huge losses.78 The NAO report on the Bank’s accreditation of Greensill Capital found that in response to the policy need to deliver money to businesses at pace during the pandemic, the Bank streamlined its lender accreditation process. But it concluded that had the Bank applied a less streamlined accreditation process with more due diligence, it is possible that the situation could have been avoided.79
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Government response AI summary
The government commits to learning lessons from COVID-19 loan schemes through a multi-year evaluation with reports published annually between 2022 and 2024, and aims to produce a lessons-learned report by Summer 2022.
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HM Treasury
28
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Accepted
The Bank told us that it will closely evaluate its COVID-19 business support schemes, including assessing whether there were things it would need “to do differently” with the accreditation processes going forward and more specifically whether there could have been better engagement with regulators as part of the accreditation process. …
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The Bank told us that it will closely evaluate its COVID-19 business support schemes, including assessing whether there were things it would need “to do differently” with the accreditation processes going forward and more specifically whether there could have been better engagement with regulators as part of the accreditation process. The Bank said that it would be a “fruitful theme” to have discussions with development banks that have also been delivering similar schemes through the pandemic. The Treasury also agreed that it would conduct evaluations of all of the schemes, so that it could draw conclusions and build on what it had learned for the next time there needed to be an “extraordinary state intervention to deal with some market failure or other problem”.81 As we have previously highlighted, it is important that these evaluations are carried out as soon as possible after the event, otherwise there is a risk that departments learn lessons too late and repeat the same mistakes.82 80 Qq 161–162 81 Qq 32, 161–163 82 Committee of Public Accounts, COVID-19: Support for children’s education, Third Report of Session 2021–22, HC 240, 20 May 2021; Committee of Public Accounts, Initial lessons from the government’s response to the COVID-19 pandemic, Thirteenth Report of the Session 2021–22, HC 175, 25 July 2021 20 Lessons from Greensill Capital: accreditation to business support schemes
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Government response AI summary
The government agrees with the recommendation to evaluate the COVID-19 loan schemes, confirming a multi-year evaluation is underway with reports due between 2022-2024, and commits to producing an interim lessons-learned report by Summer 2022.
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HM Treasury