UK Challenger FI Wyelands Questioned Over Trade Financing

The Financial Times is investigating U.K. challenger bank Wyelands over its trade financing operations, the latest case to call the financing product into question.

The publication reported Tuesday (July 23) that the FT is looking into Wyelands’ membership in the GFG Alliance, an alliance of global corporations linked to the Sanjeev Gupta family. Recent years have seen the Alliance grow significantly due to merger and acquisitions (M&A) activity, reports said, with some analysts calling into question how the Alliance is funding those investments.

That has drawn questions over Wyelands’ trade financing operations. When financiers purchase corporates’ outstanding receivables at a discount, they typically take out security against the businesses that must pay those bills.

In Wyelands’ case, according to the FT, registered as collateral against the unpaid invoices the bank is financing are a part of the Alliance, or closely linked to it. While the bank has stressed it operates independently of GFG, the publication noted that its ties to the Alliance are raising concerns about how Wyelands is using its clients’ deposits to provide trade financing.

Wyelands entices new customers with up to 1.9 percent interest savings on their deposits when clients meet a deposit threshold. Analysts at the FT revealed about 23 percent of Wyelands’ profits from interest charges — about $4.86 million — come from GFG members.

“Bank lending to related parties or their customers is not common in the U.K., though it is in some other countries like Germany and is very common in Asia,” explained University of Warwick School of Law Professor Dalvinder Singh.

Banks in the U.K. are legally allowed to lend to their affiliates up to a point but cannot favor those related parties over borrowers that are not affiliated with the bank.

Citing client confidentiality, Wyelands declined to clarify to the FT whether it lends to other members of the GFG Alliance, and whether it makes clear to its depositors that the bank is lending their money to its affiliates in the Alliance.