New government proposals intended to strengthen and simplify insolvency regulation have received a mixed response from ICAEW.
The long-awaited consultation invites views from the sector on a range of measures, including the creation of a single independent regulator for insolvency practitioners (IPs), the extension of regulation to firms that offer insolvency services and a system of compensation for victims of mistakes or wrongdoing.
“As the largest insolvency regulator in the UK, we agree that reform is long overdue,” said Duncan Wiggetts, ICAEW Chief Officer, Professional Standards. However, he went on to say he was “disappointed” by plans set out to create a single regulator for insolvency practitioners.
“The biggest problem with the current framework is not the identity of the enforcing body but the regulatory framework itself,” said Wiggetts. “This is focused on the regulation of individual IPs and therefore prevents complaints - and substantial penalties in cases of misconduct - to be brought against firms.
“In our view, the creation of a single regulator is both unnecessary and potentially damaging to the UK’s insolvency and restructuring profession, and we look forward to explaining why in our response.’’
Changes "bring the insolvency sector into line" with other professional sectors
The Insolvency Service is currently responsible for regulatory oversight of the Recognised Professional Bodies (RBPs), including ICAEW, which are responsible for regulation of individual IPs. A key plank of the changes includes plans to establish a single independent regulator to sit within the Insolvency Service, replacing the current four RBPs.
According to a government statement accompanying the consultation, the current approach has led to “weaknesses in the regulatory system as the market has evolved over recent decades”.
“As well as a lack of regulation of firms undertaking insolvency work, the current system also lacks transparency and has inconsistencies, with different bodies making information available in different formats,” continued the statement.
The proposals also extend regulation to firms that offer insolvency services, as the current regime only covers individual IPs.
“Regulation at firm level would see the insolvency sector brought into line with other sectors such as audit and the legal professions,” said the government statement. “The vast majority of firms offering insolvency services are not expected to face increased costs unless there are instances of wrongdoing.”
Under the new proposals, a public register of all individuals and firms that offer insolvency services will also be created, including whether that individual or firm has previously been sanctioned by the regulator.
The plans also include a system of compensation and redress where there has been a mistake or wrongdoing by an IP or firm offering insolvency services that has adversely affected one or more parties involved in the proceedings. A new formal mechanism will be established to allow for compensation to be paid if appropriate.
Transparency, accountability and protection
Commenting on the consultation Business Minister Lord Callanan said: “The proper functioning of the insolvency regime is vitally important to support business investment and growth and to provide a safety net for individuals in severe financial difficulty.
“Those most impacted by insolvency need confidence in the professionals involved, and the UK regime has a strong reputation for delivering the best outcomes possible when an insolvency occurs,” he continued. “In order to maintain that confidence, the regulatory regime must keep pace with the times and these proposals to introduce an independent regulator will strengthen the regime and deliver greater transparency, accountability and protection for creditors, investors and consumers.”
The proposed changes would apply to England, Scotland and Wales. Insolvency, including regulation of insolvency, is a transferred function in Northern Ireland, although there is close alignment of the insolvency and regulatory frameworks between Great Britain and Northern Ireland.
The consultation will run until 25 March 2022.
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