The government has rowed back on a proposal to introduce a single regulator for insolvency practitioners (IPs) but will take statutory power to do it in future if needed.
Meanwhile, the insolvency regulation regime will be extended beyond individuals to firms, bringing it in line with the legal and other professions.
There are currently four recognised professional bodies (RPBs) that regulate IPs – the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, Chartered Accountants Ireland, and the Insolvency Practitioners Association. They are overseen by the Insolvency Service.
The government had proposed replacing them with a single regulator housed within the Insolvency Service.
A response paper published yesterday recorded that, while respondents generally supported a single regulator “as a way to strengthen regulatory outcomes and ensure consistency of regulatory decisions”, there were significant concerns and, in some cases, strong opposition to establishing it within the Insolvency Service.
“Stakeholders argued that such an outcome would replace one set of conflicts of interest (membership bodies regulating their members) with others (including the perception that the regulator might not be sufficiently independent from government, particularly in higher profile cases).”
The government said it was also concerned by the potential for “a critical loss of the existing regulatory expertise that could result in the proposed regulator being unable to be fully effective in regulating the sector for an initial period of time”.
Ruling out this approach, the government said a new standalone single regulator for the relatively small number of IPs was unlikely to be financially viable.
It has therefore decided to improve the existing regulatory framework and work with the RPBs to “measurably improve regulatory outcomes”.
“The government will, however, legislate when parliamentary time allows to introduce a new power to enable the creation of an independent single regulator of [IPs] and firms offering insolvency services should that be needed in the future.”
The idea of a single regulator for legal services is supported by the likes of the Legal Services Board and Professor Stephen Mayson but primary legislation would be required for that too.
Responses to the proposals on IP firm regulation were “overwhelmingly supportive” and this will be introduced when parliamentary time allows.
“The insolvency sector has evolved considerably since formal regulation was first introduced in 1986, with the rise of larger, more complex firms and volume-based business models,” the government said.
“Extending regulation to firms will transform the framework by closing a gap in regulatory coverage and offer greater protection for those using insolvency services.”
The legislation will also introduce a mandatory public register for all licensed IPs and authorised firms, which will include details of regulatory sanctions made against them, and potentially detail a new way to set ethical and technical standards.
Other changes include introducing a system of redress and compensation for insolvency work, subject to further consultation, and trebling the minimum security (bonding) IPs need to have to cover losses to creditors because of dishonesty and fraud from £250,000 to £750,000.
Kevin Hollinrake, minister for enterprise, markets and small business, said: “Our insolvency sector is highly respected around the world, with the vast majority of insolvency practitioners doing a good job, making a valued contribution to our economy, and supporting those in financial difficulty.
“But there continue to be instances of poor conduct that have a direct impact on those closely involved. When that happens, it tarnishes the reputation of the whole profession, and undermines confidence.
“This forward-looking package of reforms reaffirms the government’s commitment to ensuring the insolvency profession is effectively regulated, with a regulatory framework fit for the future. These reforms will deliver transformational improvements, modernise the regime, and, crucially, increase public confidence.”