The Insolvency Service has released two reports on its own IP-monitoring team and one on ACCA’s monitoring, but is the Insolvency Service playing fair?  Is it applying double standards and how sensible are its demands of authorising bodies?

The reports can be found at: http://goo.gl/A7mXxJ

 

The Insolvency Service’s monitoring of the Insolvency Service’s monitoring

No, I’ve not copied-and-pasted by mistake: in April/May 2014, the Insolvency Service carried out a monitoring visit of its own monitoring team, i.e. the team that deals with Secretary of State-authorised IPs (“IPS”).

The report issued on 29 August 2014 identified some “serious weaknesses”, leading to a decision to make a follow-up visit three months later.  This occurred in January 2015 – not seriously tardy, I guess (although not a great example to the Team, given that late monitoring visits on IPs was the most serious weakness identified in the first visit) – and the report on the follow-up visit has now been released.

The recent report makes no reference to any further visits or follow-up actions, although the summary discloses a number of wriggle-phrases: “IPS has implemented, or made progress against, all the recommendations…  IPS has moved towards…  IPS has plans in place to address this…”  Would the Insolvency Service be satisfied if an RPB had made such “progress” towards goals?  Or would the Service be content for an RPB to accept such assurances from an IP who had only “moved towards” rectifying matters?

Catching up on overdue monitoring visits

To be fair, there did seem to be significant progress with the key issue – that as at May 2014 over half of their IPs had not had a visit in the past three years.  The report disclosed that, of the 28 IPs that had been identified from the 2014 review as overdue a visit, most had been visited or would be visited by May 2015.  The remaining five IPs had been asked to complete a pre-visit questionnaire, and the IPS planned to consider these on a risk basis and “if appropriate, schedule a prompt monitoring visit”.

It is evident from the report, however, that the only visits carried out by the Team since their 2014 review had been to IPs who were already overdue a visit.  Thus, I’m wondering, how many more IPs’ three years were up between April/May 2014 and now and is the Team constantly chasing their tails?  Of course, we expect SoS-authorisations to go in the future (although the De-regulation Bill provides a run-down period of another year), so is this really something to get excited about?  My issue is with the consistency of standards that I expect the Insolvency Service to apply to all licensing/authorising bodies.

“Independent” decision-making

The report makes reference to the introduction of “a layer of independence to its authorisation and monitoring process”.  This refers to the fact that the Section Head now decides on actions following monitoring visits and reauthorisations – with the benefit of a copy of the last monitoring report (which seems pointless to me: if the monitor’s findings were not such that they merited withdrawal of the IP’s authorisation, on what basis would they merit withholding reauthorisation up to a year later?).  Is the Section Head really independent?  I accept that the Insolvency Service structure (and budget) does not provide for the levels of independence possible for RPBs, but, again, I do feel that the Service is applying double standards here, especially given its report on ACCA below.

 

The Insolvency Service’s report on ACCA

The Service’s review of ACCA revealed “some weaknesses” and it is planning a follow-up visit within three to six months.  ACCA has rejected two of the Service’s recommendations.

Early-day monitoring visits

I was surprised to read the Service write so negatively about early monitoring visits.  About monitoring visits occurring within the first 12 months of the IP’s licence, it writes: “There is no evidence of these initial visits being conducted in accordance with the PfM [Principles for Monitoring]; instead, these appear to be conducted as courtesy visits”.  ACCA has asked the Service to clarify what is intended by the recommendation, given that a full scope visit is always completed within the IP’s first three years.  ACCA points to the PfM’s risk-based approach to early visits and states that it “will consider whether it should discontinue introductory visits in the future, given the Insolvency Service’s comments which suggest they are of little value.”

I know that ACCA is not the only RPB that carries out less-than-full-scope early visits, so I am wondering if we will see a shift from all those RPBs.

Personally, I feel that the Insolvency Service is taking the wrong tack here.  When I was at the IPA, I monitored new IPs’ caseloads to see when their first inspection visit looked appropriate.  I also took into consideration other factors: were they working in an office with other IPs?  If so, what were their track records?  Were they hitting the radar of the Complaints Department?  What did their self certifications look like?  But often a key question was: was their caseload building at such a rate that a visit would be useful?  Very often, new IPs take on very few cases and, on the basis of caseload alone, it is usually around 18 months before a proper visit can be conducted.

Nevertheless, I think that there is value in conducting an early visit.  Calling it a “courtesy visit” is a little unfair, I’m sure.  ACCA responded that “the purpose of these visits is to assist insolvency practitioners to ensure they have adequate procedures in place to carry out their work”.  And that’s the point, isn’t it?  It may be too early to see how the IP is really going to perform, but early-days are a good opportunity to see how geared-up the IP is, explore their attitude towards compliance and ethics versus profit, and perhaps even help them.  Is it sensible to criticise ACCA for not evidencing that an early-day visit has been conducted in the same way as a full visit?  If RPBs are discouraged – or prohibited – from carrying out introductory visits, compliance with the PfM would indicate that the RPB simply needs to record the decision that a full visit in the first 12 months is not necessary and then bump the IP to the 3-year point.  Is that better regulation?

Extensive monitoring reports

I have sympathy with ACCA as regards the Insolvency Service’s next criticism.  The report explains that ACCA’s monitoring reports describe the main areas of concern, but not the areas examined where no concerns were generated.  The Service recommended that “ACCA consider expanding their monitoring reports to include all information obtained during the monitoring process, including areas of no concern to provide a clear audit trail”.

Interestingly, the Insolvency Service’s 2014 report on its own monitoring came up with a similar recommendation, although in 2014 the Service’s recommendation appeared more dogmatic: “Ensuring that monitoring reports include all of the information obtained during the monitoring process, not just in relation to areas of concern; any areas where there are no concerns may be summarised.  The reports should also include the bonding information on each case.”  My original notes in the margin of that report expressed “Why?!”  I certainly don’t see why bonding information always needs to be recorded and I struggle to see how all information obtained could be sensibly written down.  When I review cases, I scribble pages of notes, summarising key facts and events in the case’s lifecycle, such as key Proposal terms and modifications, mainly so that I can see if these points are followed through over time.  As my review questions are answered satisfactorily, I move on; if I had to summarise all this information in my reports, they would double in length but I don’t believe they would be any more revealing or helpful to the reader.

The 2015 follow-up report on the Insolvency Service’s own monitoring states: “IPS had significantly expanded its monitoring reports.  These now contain sufficient detail to enable an informed decision to be made on appropriate action following the issue of the report.”  Hmm… that doesn’t exactly confirm that the reports now contain “all” information or indeed the bonding information on each case.  Does this, along with the Service’s recommendation that ACCA “consider” expanding reports, reflect that they themselves are moderating their original opinion of what should be in reports?

I cheered at ACCA’s response to the recommendation: “ACCA believes that including in the monitoring report areas where there are no concerns risks: expanding the report unnecessarily with no perceived benefit; diluting the overall outcome and reducing focus on the significant weaknesses in the insolvency practitioner’s procedures and the need to make appropriate improvements.”  Good for you, ACCA!

I think it’s a bit of a shame that, despite explaining this opinion, ACCA then states that it has amended its standard report template in an attempt to satisfy the Insolvency Service, although I am sure that many of us appreciate the wisdom in meeting our regulators’ demands even if we don’t agree with them.

“Independent” decision-making

Remembering that the IPS had satisfied the Insolvency Service on this matter by passing all monitoring reports through their Section Head, I sucked my teeth at the Service’s next recommendation to ACCA: “That any monitoring report with unsatisfactory findings be considered independently, for example by the Admissions and Licensing Committee, to assess what regulatory action may be necessary”.

Firstly, no IP is perfect; I have not seen a report with no “unsatisfactory findings”, so this suggests that effectively all monitoring reports would need to go through the Committee.  To be fair, I come from an IPA background where all reports did go through the Committee – and I thought it was valuable that the Committee see the good with the bad – but it’s a big ask for any Committee (especially if reports become far longer seemingly as required by the Service) and I am not surprised that some RPBs have sought to make the process more efficient.  After all, the majority of IPs visited are so obviously way above the threshold where some action is deserved that it makes perfect sense to fast-track these, doesn’t it?

The report stated that “ACCA regrets that it must reject this recommendation as it believes it is an impractical and disproportionate response to the vast majority of visit outcomes”.  ACCA’s response makes clear that each report is considered at least by the monitor and a reviewer, who I think can decide on certain actions such as scheduling a follow-up visit: is this not sufficient for at least the top 50% of IPs?

Admittedly, the devil is in deciding what to do with the reports at the margins: at what stage is an issue serious enough to warrant Committee attention?  Unfortunately for ACCA, the case that led to this recommendation was not a great example.  Although ACCA has done a good job in putting into context each of the breaches identified at this IP visit that ACCA decided fell below the threshold for Committee attention, I have to say that the fees issue alone – even though it was a one-off unusual circumstance (the IP had taken a £5,000 deposit for the costs of liquidating a company, but it was actually placed in administration and the IP drew the deposit for pre-admin costs without complying “fully” with R2.67A) – would have meant, in an IPA context, that it would not only have been considered at length by the Membership & Authorisation Committee, but it would have been an automatic referral also to the Investigation Committee for consideration for disciplinary action.

I am also not persuaded by ACCA’s defence that the IP’s repeat breaches of legislation and/or SIPs resulted in “no actual harm” to the debtor (in one case) or creditors “such that, given the function of the Admissions and Licensing Committee, a referral to it would not have been justified”.  In my experience, it is very rare that breaches of statute or SIPs actually result in harm, but is that the only criterion for deciding whether an issue is sufficiently serious to warrant action?  You could throw out half the rules and SIPs, if all IPs needed to do was avoid harming stakeholders.

I think that ACCA is on stronger ground as regards another issue that the IP had already rectified.  What would be the point of referring this to the Committee?  “Withdrawal or suspension of the licence would be disproportionate and it is not clear what conditions would be appropriate to protect the public, particularly as the breach had already been rectified.”

I think that ACCA’s final comments put it nicely: “To recommend that such cases should routinely be referred to the Admissions and Licensing Committee to decide on any regulatory action and timing of the next visit is a poor use of Committee resources, clearly disproportionate to the findings and, in ACCA’s view, contrary to the guidance contained in the Insolvency Service Regulators’ Code.”

Surely the Insolvency Service should be concentrating on outcomes, shouldn’t they?  After all, that is what Nick Howard said (in the podcast at http://goo.gl/WUst5M) was his objective as regards the Service’s monitoring of all the RPBs: to ensure that they act consistently in reaching the same outcomes.  Admittedly, in this case it does look to me like the IPA (for one) would have put the IP through the ringer, made him sweat a bit more, than ACCA appears to have done, but would it have affected the outcome?  If the IP took on board all of the ACCA monitor’s points and made the necessary changes (some which appear to have taken place prior to the visit in any event), does it matter how his report was processed?

And I would add: how does the IPS’ process – of referring reports to the Section Head – meet the Service’s apparent requirement for independence any better?

Complaints-handling

ACCA has evidently had some difficulties in the past in resourcing their complaints-handling adequately, although they do seem to have cracked it more recently.  I did smile, though, at the Service’s recommendation that “it would be helpful in future for the Insolvency Service to be kept informed of any significant changes in staffing and resources” – ACCA had increased their staffing for complaints from one member to two.  Can you imagine if authorising bodies took such a keen interest in IPs’ staff numbers?!

One of the Service’s other recommendations was that the name of the independent assessor be given to the complainant and the IP “to ensure transparency and openness throughout the process”.  This was the second recommendation that ACCA had rejected: “ACCA does not believe naming assessors will add any real value to the process…  If assessors are named, there is a danger that they may be passed extraneous material, which risks delays in progressing complaints.  There is also the risk of assessors being harassed by members and complainants where their decision is not favourable to them”.

My personal view is that this is another example of the Service trying to meddle with the processes instead of concerning itself with the outcomes.  I can see how they might feel that transparency in this matter might help “improve confidence” in the complaints regime, but is it that material?

 

Single regulator?

What worries me about all this is that the Service appears to be seeking to achieve consistency by ensuring that all authorising bodies’ processes are the same.  This is particularly unhelpful if the Service starts with what they think an authorising body should look like and then exerts pressure on every body to squeeze them into that mould, instead of looking objectively at how the body performs before looking to criticise its processes.

There are a Memorandum of Understanding and Principles for Monitoring.  The Service should be measuring the bodies against these standards.  The Service’s “Oversight regulation and monitoring in the insolvency profession” document (http://goo.gl/jipcWs) confirms that assessing compliance with the MoU and PfM is fundamental.  Thankfully, the MoU and PfM are not so prescriptive that they describe, for example, how much detail should go into monitoring reports.

In this document, the Service also claims to use “an outcomes and principles based approach” in carrying out its oversight role.  I’m afraid that its monitoring reports do not do much to support this claim.  If the Service wants to be effective in its oversight role, personally I think it needs to be thinking and acting smarter.

The clock is ticking for the reserve power to introduce a single regulator.  My problem is that not all that the Service is doing seems to be helping RPBs to achieve their objectives in the best way they think they can.  I ask myself: does the Service really want to support better delegated regulation?