A UK retail bank owned by industrialist Sanjeev Gupta is launching an independent review of its lending practices and financial controls, after regulators found that entities to which it lent money may have had a “closer relationship” to the Indian-born entrepreneur’s family business empire “than would typically be expected”.
The Financial Times revealed this week that the Prudential Regulation Authority, the UK’s banking watchdog, last year launched a review of Wyelands Bank’s lending to businesses controlled by its owner.
Documents produced by the bank, and seen by the FT, show that the PRA’s review, which was carried out by a third party, found that the bank may have breached rules on lending to “connected entities”.
Mr Gupta, an entrepreneur dubbed Britain’s “saviour of steel” for his rescue of ailing plants across the country, bought the bank in 2016 and incorporated it into his family’s GFG Alliance group of companies.
Wyelands Bank issued a tender to forensic accountants on Wednesday to undertake an independent review of its lending practices.
The retail lender, which has more than £700m in customer deposits and says it operates independently from Mr Gupta, is launching the review of its books in response to the PRA’s findings.
GFG and the PRA declined to comment. Wyelands Bank said: “The GFG Alliance has announced a review of its relationship with the bank and this external review is related to that.”
An FT investigation published earlier this week found that Wyelands Bank appeared to skirt a regulatory cap on related party lending, which restricts funding of affiliated companies and individuals. The lender did this by routing millions of pounds’ worth of transactions that financed GFG’s businesses and assets through a series of seemingly independent intermediaries.
Although Wyelands did not classify these entities as related parties, some GFG employees referred to them as the “friends of Sanjeev”, according to three people familiar with the matter.
The tender document, a copy of which has been seen by the FT, said that the bank was undertaking the review because the PRA’s report had “suggested a closer relationship” between these special purpose vehicles and the GFG Alliance than “would typically be expected”.
It added that it would have been prudent for the bank to view “some of the SPVs as connected parties based on Large Exposure Requirement rules”.
In a letter to the Financial Times earlier this week, Mr Gupta defended the transactions, arguing that plans for the bank to “do business with GFG Alliance” were “disclosed in the regulatory business plan”. He described the process of lending through these special purpose vehicles as the “introduction of new clients” to Wyelands Bank.
“This was disclosed in the regulatory business plan and the public reporting of the bank,” Mr Gupta wrote. “That these introductions have taken place should surprise no one.”
Wyelands has dubbed the review “project Bio Gen” in reference to a deal where 12 entities borrowed money from the bank in 2018 to buy hydropower plants in Scotland from Simec.
The FT revealed this week that the owners of some of these entities had worked for GFG Alliance previously. UK company filings show that Simec chief financial officer Rajeev Gandhi signed loan documentation on behalf of all 12 companies.
A spokesperson for GFG said earlier this week that the companies that acquired the Scottish hydro plants from Simec made “independent and informed investment decisions, using their own resources” and that the deal was “structured under the advice of one of the UK’s largest law firms”.
As a challenger to traditional high-street lenders, Wyelands seeks to attract retail savers and says it specialises in lending to small and medium-sized enterprises with a focus on the industrial sector.
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