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Government shelves plans for single insolvency regulator

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The government has put plans to create a single insolvency regulator within the Insolvency Service on the back-burner. Instead, it will focus on improving the existing regulatory framework.

19th Sep 2023
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In its response to the The future of insolvency regulation consultation, the government concluded that it would rather avoid “large scale disruptive changes in the regulatory landscape” and decided against introducing a single regulator of Insolvency Practitioners. 

It hasn’t completely abandoned plans, noting that it will introduce legislative power to create an independent single regulator “should its creation prove necessary in the future”.

Close a gap in regulatory coverage

In the absence of a single regulator, the government will continue to collaborate with the Recognised Professional Bodies (RPBs) in other areas to “achieve a step change” in the regulatory environment.  

The new approach aims to “close a gap in regulatory coverage” and bring insolvency regulation in line with other regulated professions, such as audit and legal services.

Currently, only individual insolvency practitioners can be held accountable for failures, while regulators are unable to subject firms to the same regulations. 

The government said it will “ensure that the firms who engage in offering insolvency services are subject to appropriate regulation and scrutiny alongside the existing framework for regulating individual practitioners appointed in each case”.

Taking a “proportionate approach” the government intends to concentrate regulatory efforts on targeting the highest risk entities. Collaboration with Recognised Professional Bodies will lead to the establishment of an effective framework for achieving this goal.

It will also strengthen transparency through introducing a single register of authorised practitioners and firms offering insolvency services and to subject firms offering these services. 

Minister Kevin Hollinrake emphasised the importance of these changes in the ministerial forward: “The public rightly needs to be able to make informed decisions, and a one-stop platform to check what someone is authorised to do, alongside key regulatory information, will provide them with the tools to do just that.” 

The government is also looking into developing a redress and compensation scheme for those adversely impacted by insolvency practitioner misconduct. 

Single regulator rejected

The government originally proposed creating a single regulator to replace the four RPBs: the Insolvency Practitioners Association (IPA), the Institute of Chartered Accountants in England and Wales (ICAEW), Chartered Accountants Ireland (CAI), the Institute of Chartered Accountants of Scotland (ICAS). These are currently overseen by the government arm - The  Insolvency Service

Stakeholders, however, pushed back against the single regulator within the insolvency service, arguing that it might not be sufficiently independent from government and shifting responsibility away from the RPBs would result in a loss of expertise. 

The stakeholders also raised concerns that a creation of a new single regulator would pose significant risks to creditors and confidence in the framework. These arguments convinced the government to shelve plans to create the regulator for now. 

Lisa Thomas, a licensed insolvency practitioner with over 20 years experience at Parker Andrews and a regular AccountingWEB commenter, concurred with the stakeholders' viewpoint.

“It would have caused huge disruption to insolvency structure and procedures adding extra costs which would have to have been shouldered by the insolvent estates which Insolvency Practitioner's (IP's) are appointed over,” she said.

Regarding other regulatory improvements proposed by the government, Thomas commented positively on the reform involving IP bonds to cover fraud claims, viewing it as “no bad thing”. 

She added, “I presume this will mean the cost of the security bonds will increase leading to another rise in the recharge of those costs to the insolvency estates.” 

Thomas also highlighted from the proposal the transfer of control for setting technical and ethical standards from The Joint Insolvency Committee to the Secretary of State. 

“Currently IPs are personally regulated but SoS is expected to dictate for insolvency firms to sit alongside individual IPs and be regulated too. The general consensus in the insolvency profession is that this is unnecessary. Overall, the old adage: ‘If it ain't broke, don't fix it’ seems to apply…”

Stakeholders react

The announcement was mostly welcomed by the insolvency sector. Christina Fitzgerald, Immediate Past President of R3, said the proposals take into account the changes in the demands on the framework and the profession over the last 40 years.

However, Fitzgerald added: “It is important that any regulatory changes do not impose onerous burdens on the profession and such regulatory changes should be introduced in such a way so that they support diversity, choice and a breadth of provision within the market.”

R3 expressed “significant concerns” about the compensation scheme and how it could lead to a wave of unsubstantiated claims and the creation of a PPI-style claims management industry. 

They noted that it could “place an unwanted and potentially unmanageable burden on the smaller practices within the profession, have consequences for the profession’s ability to deliver for clients and creditors, and potentially undermine the UK’s national and international reputation for having an effective insolvency framework and profession”.

Wild west

The steps the government has taken to beef up insolvency regulation comes as the sector has faced accusations of “operating in a manner that is more akin to the Wild West” in the APPG Fair Business Banking report. 

Hollinrake, the co-chair of that APPG report, reiterated these criticisms in the consultation response’s ministerial forward. 

“The nature of insolvency is such that, where there is financial failure, it is rare for creditors to get all of their money back, and there are often wider impacts on employees, suppliers and customers, as well as the economy generally. 

“It falls to Insolvency Practitioners to make difficult and contentious decisions. The unique responsibilities they bear and the decisions they take help save jobs and businesses, and deliver a fair, effective and orderly winding up to deal with financial failure where that is not possible.”

Replies (1)

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By johnjenkins
20th Sep 2023 14:42

So why can't HMRC put MTD on the back boiler and spend the money on improving existing framework, like answering the phone, sorting out post, treating Accountants with the respect they deserve as opposed to trying to block them out.

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