A review into the use of supply chain finance (SCF) by the UK government has been launched amid wider concerns small businesses might be impacted by falling confidence in the system.
Prime minister Boris Johnson has requested the review, which will look into decisions taken around the development and use of SCF and associated schemes, especially the role of Lex Greensill and Greensill Capital.
The move follows controversy over former prime minister David Cameron lobbying government to get Greensill Capital access to government funding in his role as an advisor to the company.
SCF, or reverse factoring, involves buyers partnering with banks or other organisations to provide suppliers with earlier payments.
Greensill, which supplied SCF, called in administrators last month after its main insurer reportedly withdrew funding.
The Greensill case has raised concerns there could be a loss of confidence in the SCF market more generally with investors withdrawing support, leaving small businesses more vulnerable in an already difficult time.
S&P Global reported an interview with Erik Hofmann, a professor at the Institute of Supply Chain Management of the University of St Gallen in Switzerland, who said the Greensill situation was “really bad timing” and could trigger a “domino effect” in other investors.
Fitch Ratings said Greensill’s demise could lead to tighter regulation and greater transparency requirements for SCF. It said the collapse could trigger a liquidity crisis for companies relying on its funding, and put pressure on accounting standard-setters to accelerate their review of SCF-related disclosure.
The UK government’s review will be led by Nigel Boardman, a non-executive board member of the Department for Business, Energy and Industrial Strategy and the chair of the Audit and Risk Assurance Committee. Findings will be reported by the end of June this year.
Cameron has said he did not break any rules in his contact with the government about Greensill, although he acknowledged this should have taken place through more official channels.
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