A proposed shake-up will modernise insolvency sector regulation
The Insolvency Service, part of the Department for Business and Trade, has announced a new proposal for the regulatory framework for Insolvency Practitioners, following a 2-year review. The current plan, which requires Parliament approval, will aim to modernise the framework, increase transparency and bolster confidence in regulation.
What prompted the Government’s review?
Providers of insolvency services have for decades been overseen by a number of Recognised Professional Bodies (RPBs), which include the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales (ICAEW). So, for example, the insolvency licence holders at Antony Batty and Company are licensed as insolvency practitioners in the UK and the license is from the Institute of Chartered Accountants in England and Wales.
The review into the regulation of Insolvency Practitioners was announced in 2021. The aim of the review was to propose reforms that would close a regulatory gap and bring insolvency firms in line with the rules governing providers of audit and legal services.
What is the outcome?
As the Insolvency Service announced:
“Central to the reforms are plans to introduce new rules requiring firms offering insolvency services to be regulated, in line with other regulated sectors such as audit and legal services.
Currently, only individual Insolvency Practitioners (IPs) are subject to regulation, which means regulators cannot hold their firms accountable for failures when things go wrong.
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. 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 reforms come as the Insolvency Service published the government’s response to its consultation on the future of insolvency regulation, with respondents overwhelmingly supportive of the proposal. The government will bring forward the necessary legislation when parliamentary time allows.
The reforms will also introduce the creation of a public register, which will list all individuals and firms that are authorised to provide insolvency services and show whether they are subject to sanctions by their regulator. This will improve transparency and allow users of insolvency services to make more informed choices.”
The Insolvency Service also announced that for the time being the 4 existing RPBs will continue to have oversight of the insolvency profession and will be provided with additional tools to do so. However, the Government will take the power to implement a single regulator, should that prove necessary.
Hugh Jesseman, one of our Licensed Insolvency Practitioners comments
“Although the Insolvency regime in the UK is one of the strongest in the world, things always need scrutinising and improving over time.
We note and welcome these proposed reforms especially the creation of a register that will list all firms and individuals that are authorised to offer insolvency services and show whether they are subject to sanctions by the regulator.
Insolvency is often complex and requires skilled licensed insolvency practitioners who fulfil all the regulatory requirements on an on-going basis. The register will mean that users of insolvency services will be able to make a more informed choice when it comes to insolvency advice and appointments.”
