Every IP with an appointment-taking licence from ICAEW must review and record, at least once a year, the effectiveness of their quality control procedures and compliance with the Insolvency Licensing Regulations and Guidance Notes.
In areas such as audit, DPB (Investment Business), anti-money laundering and probate it is the firm’s responsibility to carry out an annual compliance review. But for insolvency work, the obligation falls on the individual IP.
“It doesn't matter whether you are an ICAEW member or an affiliate, this applies to every IP with an ICAEW appointment-taking licence,” explains Alison. “Broadly, the requirements are to have an insolvency compliance review each calendar year. But the devil is in the detail.”
“You have to have your compliance review within 12 months of your first case appointment, regardless of whether you act as lead or as a joint IP.”
For example, if your licence started at the beginning of June and you took your first appointment on 1 July, you would need your first compliance review by the following 30 June. Then, after that, it would be a calendar year requirement. So, if you’d had a review by 30 June 2023, the next one could be at any time during 2024.
Avoiding mistakes
The compliance review requirement was introduced from 2005. But every year IPs are still being referred to ICAEW’s Insolvency Licensing Committee for failing to have a review.
“In some cases, this is simply because they leave it too late,” says Alison. “This often happens when they want to engage outside specialists to do the review but don’t get it booked early enough and the external provider has no availability before the deadline.”
“Some IPs just don't book it in time,” she explains. “In other cases, they mistakenly think that if they’ve done a file review in the course of acting as an office-holder, then that meets the compliance review requirement, but it doesn't; it has a separate purpose.”
Reviews can also get missed when IPs move firms. “An IP might have been in a firm where reviews are centrally organised,” says Alison. “The reviews have not yet been done for the calendar year, but then an IP leaves and goes to another firm that also organises reviews centrally. That firm may have done reviews for the calendar year and , instead of everyone checking the new IP has had a review, it gets forgotten.”
“Issues also come up where IPs are winding down: they're practising but they're about to retire and not taking on new appointments, so they don’t think they really need to keep doing it. But yes, they do.”
Failure to carry out a review is taken very seriously by the Insolvency Licensing Committee. In fact, it is the most common breach leading the committee to offer a regulatory penalty.
Separate purposes
There are also cases where IPs have believed that their insolvency compliance review covers the obligation for an annual compliance review under the clients’ money regulations. This is not the case. Nor does the compliance review automatically cover the SIP 11 requirement for IPs to conduct annual reviews of their financial controls.
“IPs sometimes seem to be under the misapprehension that if they have an annual insolvency compliance review done, it satisfies the requirements for that, the clients’ money regulations and the SIP 11 financial controls review,” says Alison.Other problems can arise where IPs engage an external provider but aren’t explicit that they want all three reviews carried out.
“So that's where compliance and other reviews can also get missed,” says Alison, “because the IP mistakenly believes they’ve been done and tells us they thought they were done.”
“It’s important to understand these are separate requirements. It’s not that you can't do them all at the same time or with the same external provider, but you do need to make sure all of them have been done and that they fulfil the specific requirements for each”
Act on it
“It’s also really important that when a review is done, it's not just put on a shelf in a file,” says Alison. “It must be acted upon. Practitioners need to look at the issues raised from it and take steps to avoid recurrences.”
“Because if we later do a monitoring visit and we're finding the same things that were raised in the review, and you’ve had sufficient time to put them right but haven’t, that can have more serious consequences than if you’d taken corrective and/or remedial action in a timely manner,” she explains.
“No file is ever perfect, so it’s far better that you spot something early and put it right before it becomes a systemic problem, perhaps affecting lots of cases.”
Compliance reviews can be a particularly useful tool in the wake of the pandemic. “What we're finding on our monitoring visits is that because of home and remote working, some IPs haven't necessarily been able to exercise their usual degree of oversight over their teams,” says Alison.
The compliance review provides an ideal opportunity to identify issues that have occurred in this context, and ask: How can we put it right? How can we avoid that happening now we’re working in different ways? “It's a really useful way to pick up on those,” says Alison.
“One of the aims of the review requirement is for it to be a beneficial tool. Many of our IPs have seen, and continue to see the benefit of it.”
Resources
Download ICAEW’s insolvency compliance review help sheet.
Learn more about the wider benefits of compliance reviews.
Read what compliance reviews mean for DPB (Investment Business) licence holders.