Recommendations & Conclusions
6 items
2
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
The Department and the Bank struck the wrong balance between making decisions quickly and protecting taxpayer interests. We have previously found that the need to work at speed in responding to the pandemic has in some instances resulted in increased risk and potentially exposed the taxpayer to huge losses. The …
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The Department and the Bank struck the wrong balance between making decisions quickly and protecting taxpayer interests. We have previously found that the need to work at speed in responding to the pandemic has in some instances resulted in increased risk and potentially exposed the taxpayer to huge losses. The Bank’s approach to assurance consists of: the initial accreditation of lenders; post-lending assurance; and legal and contractual protections within the scheme guarantee agreement. The Bank’s decision to follow a streamlined accreditation process when assessing Greensill’s application—as with other non-bank lenders— placed greater reliance on post-lending audits and legal protections rather than performing detailed upfront due diligence. The Bank asserts that it adopted a tiered approach to accreditation, which differentiated between regulated banks and non-bank lenders. For example, regulated banks and lenders with which the Bank had an existing relationship underwent an accelerated process. The Bank accepts that delivering at speed has exposed it to risk, but it considers the interests of the taxpayer to be very well protected through its contractual arrangements with each lender. While the Bank has legal protection in preventing a guarantee being called if it believes scheme rules have not been followed, this is by no means a certain outcome—Greensill’s administrators have stated their belief that Greensill is compliant with the scheme rules. With more time and due diligence, the Bank might have reached a different decision on Greensill’s accreditation. 6 Lessons from Greensill Capital: accreditation to business support schemes Recommendation: The Bank should write to the Committee by the end of the year setting out how it will better balance between speed of delivery and value for money in future and what trade-offs it is prepared to accept. The response should detail how the Bank will identify these trade-offs early, perform scenario analysis of potentia
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Government response AI summary
The government agrees with the conclusion but the response focuses on the Department's existing value for money assessment processes and commitment to improve future reporting transparency, rather than the Bank outlining its plan for balancing speed and value as requested.
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HM Treasury
3
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
The Bank’s approach to due diligence in accrediting Greensill was woefully inadequate. The Bank took comfort in Greensill having raised significant funding from global investors and its activities in managing billions of pounds in lending. In doing so, the Bank has placed too much reliance on the work of others …
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The Bank’s approach to due diligence in accrediting Greensill was woefully inadequate. The Bank took comfort in Greensill having raised significant funding from global investors and its activities in managing billions of pounds in lending. In doing so, the Bank has placed too much reliance on the work of others in accrediting Greensill, including Greensill’s auditors, whose work is currently being investigated by the Financial Reporting Council. The Bank has accepted much of the information provided by Greensill in its application at face value, including its statements of who Greensill would lend to. It seems clear that had the Bank been more curious and sceptical in its accreditation process, Greensill’s application would have raised many more questions. Greensill’s default rates and exposure to key clients have both been the subject of press reports prior to, and during, Greensill’s accreditation, yet the Bank did not cast its net widely enough in gathering evidence on Greensill. For example, the Bank did not make enquiries of the companies Greensill proposed to lend to under CLBILS. The Bank also did not explore what other government departments and regulators knew about Greensill – including those who were also assessing it for access to other schemes. Neither did it make any enquiries of Greensill’s credit insurers. While there was no proven fraud at the point of accreditation, several parties subsequently raised concerns about Greensill. Ultimately, the Bank’s inadequate due diligence has put public money at risk. Recommendation: The Bank should, by the end of February 2022, review its accreditation process, particularly for non-bank lenders and write to us with the results. The review should include the Bank’s approach to: • The principles applied to streamlining an accreditation process, and how post-accreditation checks seek to deal with any risks that arise as a result; • challenging and verifying information lenders provide regarding who they plan to len
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Government response AI summary
The government's response discusses general supplier performance management, cost assurance, and risk apportionment in contracts, with a commitment to write to the Committee on these topics by May 2022, but does not address the specific recommendation for the Bank to review its accreditation process for …
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HM Treasury
4
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
The Bank has been insufficiently curious when identifying where money lent through the schemes, including by Greensill, has ultimately gone. Companies have borrowed around £30 billion under CBILS and CLBILS. The schemes’ rules require these funds be used to support business activity in the UK. However, the Bank does not …
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The Bank has been insufficiently curious when identifying where money lent through the schemes, including by Greensill, has ultimately gone. Companies have borrowed around £30 billion under CBILS and CLBILS. The schemes’ rules require these funds be used to support business activity in the UK. However, the Bank does not track where the money it has lent as part of the schemes has gone and cannot guarantee the money has not been offshored. The Bank is unable to confirm how the £350 million Greensill loaned to GFG Alliance companies was used, or in Lessons from Greensill Capital: accreditation to business support schemes 7 which country the money was spent. The Bank believes the money has gone into a ‘central treasury function’ within the GFG Alliance, although it does not know where this is based. The Bank is relying on the work of Greensill’s administrators to identify where the loans have gone and, by extension, where the taxpayers’ exposure potentially lies. The Bank has published summary data showing the geographical split of where some of the money issued through its COVID-19 loan schemes has gone. However, this did not include regional and sectoral data for CLBILS owing to data protection and commercial considerations. Without knowing where the money has gone it will be impossible to say whether the objectives of the schemes to support UK businesses has been fully met, or whether taxpayers may be exposed to risks in the future. Recommendation: As a matter of urgency, the Bank should inform the Committee how it ensures that money lent under CBILS and CLBILS supports businesses in the UK and the British economy, how it monitors this in practice, and what action it would take if it discovered funds lent under these schemes have been offshored.
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Government response AI summary
The government's response discusses cost savings and project delivery within the Ministry of Defence, entirely failing to address the recommendation regarding the Bank's monitoring of funds lent under COVID-19 business support schemes.
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HM Treasury
6
Recommendation
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
The Department’s enquiries of the Bank during Greensill’s accreditation created a damaging perception of interference, though the Bank asserts that this did not affect its judgement. The Department had eight email exchanges with the Bank between April and September 2020 requesting updates on Greensill’s accreditation to CLBILS and whether it …
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The Department’s enquiries of the Bank during Greensill’s accreditation created a damaging perception of interference, though the Bank asserts that this did not affect its judgement. The Department had eight email exchanges with the Bank between April and September 2020 requesting updates on Greensill’s accreditation to CLBILS and whether it would be allowed to lend up to £200 million. The Department’s interest in Greensill’s accreditation was based on the potential for the scheme to support Liberty Steel, part of the GFG Alliance and a major Greensill customer. The Bank describes this level of interest as “unusual”. Furthermore, when challenged on its lending to the GFG Alliance, Greensill told the Bank that it had received “political steers” that its support for the steel industry was welcome. The Department is unable to explain the source of this perceived support and has confirmed with all its ministers that no political cover for Greensill has been provided. On 30 April 2021, the Bank launched an internal review to assess whether third parties sought to influence it during the accreditation of Greensill and, if so, the outcome of that influence. The purpose of the review was to find out whether anybody attempted to exert influence over the Bank, not just whether these attempts were successful or not. The Bank’s review has concluded that its independence was not compromised. Recommendation: Alongside its Treasury Minute response, the Department should write to the Committee within three months setting out the principles it will apply to future correspondence with the Bank on matters for which the Bank is operationally independent, to minimise any future perception of influence. The Treasury should, jointly with the Cabinet Office, set out cross-government principles to create a more routine and transparent way of sponsoring bodies making enquiries of its arms-length bodies.
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Government response AI summary
The government's response discusses defence funding, the Integrated Review, and the formation of the UK Health Security Agency, entirely failing to address the recommendation on establishing principles for correspondence with the Bank or cross-government principles for arms-length bodies.
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HM Treasury
8
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
The Bank accredited Greensill to lend under both CBILS and CLBILS. As Greensill was not PRA regulated nor did it have a pre-existing relationship with the Bank, it was initially 6 Qq 17, 19; C&AG’s Report para 2, 2.4 7 C&AG’s Report, para 2.6, Figure 9 8 Q 14 9 …
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The Bank accredited Greensill to lend under both CBILS and CLBILS. As Greensill was not PRA regulated nor did it have a pre-existing relationship with the Bank, it was initially 6 Qq 17, 19; C&AG’s Report para 2, 2.4 7 C&AG’s Report, para 2.6, Figure 9 8 Q 14 9 Committee of Public Accounts, Covid-19: Bounce Back Loan Scheme, 33rd Report of Session 2019–21, HC 687, December 2020 10 Q 19 11 Q 18; C&AG’s Report, para 10 12 Q 29; C&AG’s Report, para 2.6 13 Q 29, C&AG’s Report, paras 2.2, 2.6 12 Lessons from Greensill Capital: accreditation to business support schemes subjected to the Bank’s standard accreditation process, with subsequent applications completed through the accelerated process. The Bank undertook limited due diligence on Greensill’s application—as with other non-bank lenders—accepting key information at face value. The Bank did carry out some cross-referencing of Greensill’s application with its 2018 audited accounts, but important figures, such as Greensill’s stated £120 billion of financing in 2019, could not be verified using publicly available information. The Bank told the NAO that the purpose of its due diligence was not to conduct a detailed assessment of Greensill’s financial position, but to confirm that lenders could reliably deliver money to borrowers, in line with government’s objectives for the scheme.14 We therefore asked the Bank what it had done to satisfy itself that the information provided by Greensill was accurate. The Bank told us that it “would imagine” this £120 billion figure was accurate, adding that while there was no single source to verify it, there was “plenty of evidence” that Greensill had “run very significant debt investment programmes for significant global investors across the world”.15 It explained that while it did not have a commercial relationship with Greensill prior to CBILS and CLBILS, it was aware of the organisation and “knew them as a leading player in the UK finance market” and “had observed their work in the
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Government response AI summary
The government response consists of boilerplate text listing relevant reports and does not engage with the committee's conclusion regarding the Bank's accreditation of Greensill or its due diligence process.
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HM Treasury
27
Conclusion
Twenty-Sixth Report - Lessons from Gree…
Not Addressed
We asked what lessons had been learnt or what could have been done differently as a result of Greensill’s access to these taxpayer-backed schemes. The Treasury told us that it wanted to review all the reports and inquiries, such as the Boardman Review and reports by Select Committees, “in the …
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We asked what lessons had been learnt or what could have been done differently as a result of Greensill’s access to these taxpayer-backed schemes. The Treasury told us that it wanted to review all the reports and inquiries, such as the Boardman Review and reports by Select Committees, “in the round” before coming to any conclusions specifically on Greensill. The Department described a positive lesson from the Greensill experience that 71 Qq 147–149, 150–152 72 Press Release - July 6, 2021 - British Business Bank (british-business-bank.co.uk) 73 Qq 145–147 74 Q 152; C&AG’s Report, para 7 75 Q 123 76 Qq 153–4 77 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 78 Committee of Public Accounts, COVID-19: Bounce Back Loan Scheme, Thirty-Third Report of the Session 2019–21, HC 687, 16 December 2020 79 C&AG’s Report, para 20 Lessons from Greensill Capital: accreditation to business support schemes 19 the “careful auditing, the fast reaction to stop new lending and the process of suspending the guarantee” led to a situation where it was hopeful it had correctly protected public money.80
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Government response AI summary
The government's response states it agrees with 'the recommendation' and commits to a multi-year evaluation of COVID-19 loan schemes and publishing a lessons-learned report by Summer 2022, but this does not directly address the committee's conclusion outlining what the Treasury had *said* about reviewing reports.
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HM Treasury