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Greensill, Archegos point to tougher 'non-bank' rules, says UK watchdog

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By Huw Jones

LONDON (Reuters) – The collapse of supply-chain company Greensill and meltdown at hedge fund Archegos highlight the need for better data on the growing role of “non-banks” in finance, Britain’s Financial Conduct Authority said on Wednesday.

Regulators and central banks are increasingly taking a closer a look at “non-banks,” which have grown rapidly since banks themselves became subject to far stricter rules after bailouts of lenders in the 2008 global financial crisis.

The FCA is formally investigating Greensill, which lent money to firms by buying their invoices at a discount, a type of commercial lending that is not regulated in Britain.

“What this experience does show is that where there is interaction with regulated activity, be it at a bank or capital market, there is scope for us to further strengthen the information that we are gathering,” FCACEO Nikhil Rathi told a parliamentary hearing on Greensill.

The Archegos episode also raises questions about how family office investment operations report transactions, Rathi said. Archegos struggled after it was asked to meet a huge margin call from its banks.

Rathi said the FCA and finance ministry are scrutinising two sets of rules dating to the 1980s.

The first allows foreign financial firms to access Britain’s market without telling regulators, while the second allows a regulated firm to give an “appointed representative” permission to carry out financial activities, a mechanism used by Greensill.

“At the very least we need to know what’s going on in these areas which are not formally regulated,” Rathi said.

The appointed representative regime was only intended for limited use but has been applied far more widely, Rathi said.

“That feels to me like we need to be looking much more closely at systems and controls the principal has in place, and potentially placing restrictions on the scale of business that can be undertaken through this mechanism,” he said.

(Reporting by Huw Jones; Editing by Cynthia Osterman)

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