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German credit rating agency Scope has been fined more than €2mn by European regulators for conflict of interest breaches connected to ratings it provided to Greensill Capital, the collapsed finance group.
The European Securities and Markets Authority did not publicly name Greensill when levying the rare fine last week, but the dates of individual credit ratings and other details referenced in the €2.2mn penalty exactly match Scope’s work for the failed supply chain finance group.
Scope handed Greensill Bank, the group’s German banking unit, a strong A- credit rating in August 2019, in a report that touted the Bremen-based lender’s very high capitalisation and liquidity. While it then downgraded this rating to BBB+ in October 2020, this still put Greensill Bank safely into investment grade territory.
Greensill Bank collapsed less than six months later and German prosecutors opened a criminal investigation into the bank’s management. Days after the collapse in March 2021, Scope downgraded the bank to junk and withdrew its credit rating.
While the bulk of Greensill Bank’s €3.5bn deposits were covered by an insurance scheme, the collapse inflicted severe losses on a number of small towns and municipalities who had about €500mn of uninsured deposits with the bank.
Esma did not name Greensill in its judgment and declined to comment on the identity of the parties involved. Instead, the regulator in its report referenced anonymised companies “[Company A] Bank AG” and “[Company A] Capital (UK) Limited”.
The penalty was for five breaches, which detail failures in Scope’s policies and procedures to flag and address potential conflicts of interest, and point to two potential conflicts “regarding one particular individual” and an entity.
During the period Scope Group entities provided other advisory services to Greensill as well as credit ratings, such as “industry risk reports” Esma said, and it failed to flag these services when rating the credit worthiness of Greensill Bank.
The rating agency also failed to raise the potential conflict of interest involving Maurice Thompson, a former executive at Greensill.
Between 2017 and 2021, Scope was providing credit ratings and other services to Greensill while Thompson, the chair of Greensill Capital at the time, was also a shareholder in the rating agency’s parent company, Scope Group, and a member of its advisory board.
“The individual also played a role in bringing these entities as a client to Scope’s group and was paid for this by Scope’s group,” Esma said in its report, adding that the person also “had interactions with Scope’s staff involved in rating activities”.
Scope told the Financial Times that the issues raised by Esma “had no influence on individual ratings issued by Scope”.
The rating agency’s policies state that it will not issue a credit rating if a person owning more than 5 per cent in Scope is also a member of the administrative and supervisory board of the rated entity, but failed to raise any concerns over Thompson’s less than 5 per cent shareholding at the time.
Thompson resigned as Greensill’s chair in March 2021, as the group fought to stave off insolvency, and is no longer listed as a member of Scope’s supervisory board. Scope declined to answer whether Thompson was still a shareholder.
Thompson could not be reached for comment.
Rating agency fines are relatively rare in Europe, although Esma levied a record €5mn fine against Fitch Ratings in 2019 around similar conflicts of interest surrounding its rating of French grocer Casino.
Greensill was the eponymous company of Australian financier Lex Greensill, whose connections to former UK prime minister David Cameron sparked a lobbying scandal when the company collapsed. Cameron, who is now the UK’s foreign secretary after being ennobled last year, earned millions of pounds as a boardroom adviser to Greensill, but has refused to publicly confirm his total pay.