Greensill Bank drama: "Fraud cannot always be prevented"

Wednesday March 10, 2021

Greensill Bank drama
"Fraud will not always be prevented"

Interest rate platforms such as Weltsparen have brokered hundreds of millions of euros from small investors to Greensill Bank – there were critical reports last summer. In an interview, Weltsparen founder Georgadze speaks about the allegations and why it is not the job of fintechs to check books.

There were critical reports about Greensill Bank last summer. Why did you forward the customer funds there via your platform "Weltsparen.de"?

Tamaz Georgadze: Behind this is the question of our role. As an interest rate platform, we are unable to carry out a more in-depth balance sheet review. We look at the company from the outside. Greensill Bank was very well capitalized with around 500 million euros in equity, measured in terms of deposits and risk – and it worked profitably. The institute even recommended a "financial test". We of course noticed the critical reports. But it was about concentration risks, not about falsifying the balance sheet. And there are critical reports about many banks.

In other words, as an interest rate platform, you have no audit responsibility?

Of course, we take a look at the banks before they come to our platform, for example whether they are working profitably, how much liquidity they hold and what the ownership structure looks like. We have to distinguish between two considerations: First, what damage can our customers suffer? In the case of Bremer Greensill Bank, the funds of private investors were and are secured by statutory and private deposit insurance. And then, secondly, the question arises: Why did the security mechanisms not work in this case of alleged balance sheet manipulation? Both the auditing association of banks and the Bafin have instruments of control and sanction. For example, the Bafin can limit the amount of deposits.

Couldn't you do more?

How is that supposed to work in practice? If the "Greensill case" is now turned into a fintech case, then that is absurd. It is not the job of the interest portals to check the books, that is the job of the supervisory authorities and the auditors. How should an extensive test from our side work in practice, if you please? We naturally lack the means and instruments for this. And: who would that still apply to? What about Check24? What about "financial test"? What about google? Because Greensill Bank not only approached savers via the portals, but also marketed itself directly on the Internet. We are now suddenly the focus of criticism. We only received ten to 15 percent of the deposits …

… that would be roughly 350 million to 500 million euros …

… while the vast majority of the money apparently did not flow to Greensill Bank via interest portals, but via classic deposit brokers who conduct their business on behalf of corporate customers and other institutional investors. Why are people now pretending to be the saver?

Your model envisages that investors get higher interest rates and still, in theory, there is no default risk. Doesn't that contradict the principle that higher returns go hand in hand with higher risks?

You have to make yourself aware of our function again. On the one hand, there are the normal retail banks. Who are currently sitting on an unbelievable amount of money, which is increasingly paying negative interest. On the other hand, there are banks that operate factoring or real estate financing, for example, and that need money and are looking for precisely such deposits in order to be able to refinance themselves more cheaply. We connect these two parties via our platform – and this function explains why small investors receive higher interest rates via portals such as Weltsparen than with their house bank. So it is not the case that savers receive higher interest rates from us because we outsource the risks to the deposit insurance.

In your opinion, are there no mechanisms to bring only the good banks onto the platform?

In Germany alone there are 1,600 banks on the market, in Europe there are around 6,500. The vast majority have a legitimate and solid business model, and not all are balance sheet fakers and manipulators. Some of them have good margins with their leasing, factoring or real estate transactions. The end customer is not able to check this – and we as a platform lack the means and the authority to do so.

How can a case like Greensill be prevented from your point of view?

So far, you don't know the background. But generally speaking: fraud cannot always be prevented. But there are instruments: sanction mechanisms for board members. Or better protection for whistleblowers. Because when fraud is involved, board members do not all make the bookings themselves in case of doubt, but there are confidants.

What consequences does the case have for the image of the interest rate platforms?

It's hard to say. Our main concern right now is to help where we can. For example, we provided customers with extensive information. And there are countless press inquiries. Saving the world is suddenly the focus because we have spoken out. Other stakeholders such as the rating agency, other intermediaries or our competitors have not yet commented.

How do the customers react?

Especially at the beginning of the reporting, many people got in touch and asked how things were going from now on. In the meantime it has calmed down again.

The interview is first published by Finance Forward.