The boss of the City watchdog has said that authorities need to look more closely at a system which allowed failed finance company Greensill to operate in the UK without a licence.

Greensill was able to do some of its business by piggybacking off US-based Mirabella Advisers, which is licensed in the UK.

It meant that Mirabella had the responsibility to ensure that Greensill was playing according to the rules, while Greensill itself was not regulated by the Financial Conduct Authority (FCA).

The system which made Greensill an “appointed representative” of Mirabella, which was known as the principle.

The appointed representative system was launched in the 1980s to allow small, self-employed providers to not each have to get a license and be overseen by the regulators.

“It’s evolved over time, I certainly don’t think it would be proportionate for the FCA to supervise a sole trader that’s selling insurance in their local market, or a self-employed mortgage broker .. and that’s what the regime was designed for,” said FCA boss Nikhil Rathi.

“It’s moved into much more complex areas, and it’s quite liberal in terms of the range of activities an appointed representative can undertake … basically everything other than deposit taking and managing investments.

“That feels to me like we need to be looking much more closely at the systems of control that the principle has in place and potentially also placing some restrictions on the scale of business that can be undertaken through this mechanism.”

The collapse of Greensill has sent shockwaves through its customers, with speculation that some of them may go out of business, putting thousands of jobs at risk.

According to some estimates, the taxpayer might end up being on the line for billions of pounds due to the collapse.

Although that is for now merely speculation.

It has also sparked a lobbying controversy, as former prime minister David Cameron worked with Greensill.