The publication of the consultation paper followed criticism of the profession in September 2021 by a committee of MPs, the All-Party Parliamentary Group on fair business banking. That in turn followed a scandal concerning the administration Silentnight that was widely reported in August 2021. The sale of the business to a private equity firm, without its £100 million pension scheme, resulted in the administrators, KPMG, and one of their partners receiving a fine.
The current regulatory framework for the insolvency profession has been in place since the 1980s. The government says that the changes are required to reflect a shift that has taken place over the last 35 years from a time when insolvency practitioners largely worked in small practices, to the position now, where larger firms are increasingly dominating the profession. At present the insolvency profession is self-regulating with 4 professional membership bodies plus the Insolvency Service all involved in regulating just under 1,600 insolvency practitioners. The government maintains that this has led to a lack of common standards and consistency.
The following are the most important changes proposed in the paper:
- The introduction of a single regulator for the insolvency profession who will sit within the Insolvency Service. It is proposed that the regulator will have powers to authorise/licence insolvency practitioners (“IPs”) and firms to practice, as well as to regulate and discipline the profession, and set technical, professional, ethical and educational standards.
- The introduction of the regulation of firms offering insolvency services. This includes volume providers of IVAs. At present only individual IPs are regulated, but there is no specific regulator for firms offering insolvency services.
- The introduction of a register of authorised IPs and firms offering insolvency services, which would replace the current licensing process.
- A new scale of fines or other sanctions which could be imposed on IPs or firms by the regulator, as well as a formal compensation scheme where a poor standard of service by an IP or firm has had an adverse impact on a party or parties to an insolvency proceeding. At present the 4 regulatory bodies for the profession cannot order compensation.
- At present IPs must hold security, known as surety bonds, which are intended to safeguard creditors against fraud or dishonest conduct. The changes proposed include extending the statutory minimum requirements of surety bonds and a revision of the monetary limits, which have not been changed since they were introduced in 1986. In addition, the paper proposes the introduction of a claims protocol.
If brought in, the changes will require legislation. At present the government is consulting with the industry. The government has currently set a deadline of 25 March 2022 for the industry, or other interested parties, to feed back their views.
R3, the trade association for insolvency and restructuring professionals, has broadly welcomed the consultation process, stating that it should be seen as an opportunity to deliver a regulatory framework that is more effective, fit for the industry as it now is, and better able to carry the confidence of the public. However, concerns have been raised regarding specific proposals, principally the proposal that it is the Insolvency Service that would assume the role of regulator. It is believed that this would lead to the Insolvency Service having a conflict of interest, being a body which would regulate the profession, set insolvency legislation, and compete with insolvency practitioners for work, whilst itself not being subject to the same regulation as IPs.
In the circumstances, R3 have stated that, amongst other things, they will be pressing the government to explain how it will ensure both the independence of the proposed single regulator and a level playing field for the public and private sector parts of the insolvency profession.
If you have any enquiries or concerns relating to this article please contact Oliver Jackson by email or by phone on 01293 558552.
