New proposals for the future of insolvency regulation were published on 12th September 2023 and included plans for single regulators, regulatory objectives and the regulation of firms in addition to Insolvency Practitioners.
In his latest Coffee Break Briefing webinar, Insolvency Partner & Specialist Malcolm Niekirk looked at these new proposals and broke down a potential timeline.
This is the summary of that briefing.
If you'd like to watch the webinar back, you can do so below, if not, read on for our summary...
Quick Links
- The recent history of insolvency regulation
- Consultation on proposed changes
- Government response to consultation
- When might these changes come into effect
Case Study
Savants was a one-man practice by an Insolvency Practitioner called Adrian Duncan. He had regulatory issues. He was prohibited from taking on new appointments (but allowed to work through his existing workload).
His regulator failed to monitor his compliance with this prohibition, and it turned out that he was in fact taking on new cases despite his ban.
By the time his practice shut down, there was about £4m missing from estate funds.
This resulted in the first ever formal reprimand being issued by the Secretary of State to Mr Duncan’s regulator, ICAEW.
The regulator had failed to notice that Mr Duncan had continued to take on clients and had not taken more steps to ensure proper control of the funds in the estate.
The recent history of insolvency regulation
Statutory Regulatory Objectives
In 2015, legislation introduced the statutory regulatory objectives that govern the profession now. And also gave the Secretary of State the job of oversight regulator.
The legislation included the power for there to be a single regulation. There were then, five RPBs. But that power expired in late 2022.
Call for evidence
The Insolvency Service issued a paper calling for evidence about regulation. The main questions were whether regulation was working and whether a single regulator should be established.
Consultation on proposed changes
The Secretary of State listened to that call for evidence and issued a consultation paper in 2023 that set out a number of proposed changes. It asked the more detailed question ‘are these changes sensible and should we implement them?
The issues identified in that paper were that:
- There were too many regulators
- The perception of conflicts, in some cases, between firms who employ IPs and the IPs working within those firms
- The question of a public register of insolvency practitioners
- Questions on bonding and whether it should be replaced by another type of compensation scheme (with some interim changes now).
The proposals
The proposals that were listed in that paper were as follows:
- A single regulator could be set up by making one of the four the single RPB, or setting up a new, independent RPB, or creating a government-run single regulator
- The last option was preferred
- Firms employing IPs would need to be regulated, as well as IPs themselves. Firms operating in high-risk categories would have enhanced regulation applied to them
- Sanctioned IPs and firms would be noted on a public register
The government thought that the power of the regulator should be expanded to give them the ability, when applying a sanction to IPs or firms, to order the firm to pay compensation as well.
A compensation fund should be set up to cover cases where firms are unable to pay. The profession would pay for that compensation fund. The profession would also pay for the regulator.
Bonds would be improved, with the single regulator holding a bond of last resort. This might be an interim agreement, to be replaced by a better compensation scheme.
Government Response to Consultation – 2023
The government have now published their formal response to the consultation which is a clear indication as to the way that policy is going to go.
Single Regulators
The big issue, of course, is about a single regulator. The government response indicated that this was a good idea, but a single independent regulator was preferred, over a government run regulator.
That’s the way it’s likely to go with a single independent regulator being set up, but the response suggested that legislation will probably be necessary for that.
Regulatory Objectives
The consultation also looked at the regulatory objectives and they suggested that there’s no big changes need in the medium term, but perhaps in the long term when regulating firms comes into effect and definitely when single regulation occurs.
Ethical and Technical Standards
The Insolvency Service proposes that the Secretary of State should take over the job of setting ethical and technical standards (such as SIPs, for example).
The consultation suggested that legislation may be needed.
Regulation of firms
This is certainly going to be the way forwards. Sole practitioners will not need their firm, essentially themselves, to be regulated separately from themselves as an individual IP.
However, practices of any larger size will have to be authorised and regulated. Unregulated firms will be barred from insolvency work. Firms will need to nominate a compliance officer, likely at board level.
When might these changes come into effect?
If RPBs got together with the Secretary of State to create a de facto single regulator, pending new legislation, I’d guess it would take 12-24 months.
A statutory single regulator would take longer. It’s likely that there will be a general election in 2024 and potentially a new government. Insolvency regulation may be further down the list of priorities if a new government is elected.
State control of SIPs could be done by agreement between RPBs and the Secretary of State. My guess would be that it could take 12 months for this to occur.
Regulation of firms could perhaps be done with a new SIP. If so, it wouldn’t take more that 12-24 months. Unless new legislation is needed, in which case it may take longer (again, especially if there’s a new government in power).
Bonding reform may be possible with secondary legislation, if so it could take anywhere from 6-24 months.
Specialist Insolvency Solicitors
My next Coffee Break Briefing is likely to be on Berkeley Applegate orders. This might be relevant in cases where you need to unscramble a client account (for example).
If you have any questions after reading this article, please don’t hesitate to get in touch with our bright and experienced team.
Call us on 01202 499255, or fill out the form at the top of this page, for a free initial chat.
Comments