The new SIP3.1 has c.1,300 more words than the old SIP. That means it’s around 72% longer than its predecessor. Inevitably, the new SIP involves additional prescriptive requirements on IPs and delivery of yet more words to debtors and creditors.
Will the changes improve the standards of advice and IVAs? How can you make sure that you’ve taken account of all the changes introduced by the revised SIP?
The revised SIP3.1, effective for IVAs where the nominee was appointed on or after 1 March 2023, is available from https://www.r3.org.uk/technical-library/england-wales/sips/more/29119/page/1/sip-3-voluntary-arrangements/
In this blog post, I look at:
- A change in the role of adviser
- Must all advice be tailored to the debtor?
- The need to give more information on rejected options
- Eleven new items added to the initial advice
- How much time should debtors be given to absorb advice?
- Vulnerability makes an appearance
- A greater emphasis on documented assessments
- What is an “in-person” meeting?
- Substantial changes to processes where a debtor has been referred, especially where any advice has previously been given
In the next post, I will be working through the rest of the SIP, including new duties on Nominees and Supervisors.
Please note that, while I have attempted to cover the main changes in the SIP, there are several others not covered in my blogs – I think my posts are long enough already! Therefore, you will need to scrutinise the SIP yourself to ensure that you have addressed all the requirements.
If you’d like to absorb all this in another medium, you might want to try out Jo Harris’ webinars on the subject. Drop a line to email@example.com to learn more.
For whom is the IP acting?
I had always believed that, before acting as nominee, the firm’s primary role was to provide advice to the debtor. The firm’s engagement is with the debtor and, I thought, the regulators were concerned to ensure that firms acted in the interests of debtors – the old SIP3.1 did state that this was the role of the adviser.
Para 16a of the new SIP redefines the role of the firm in the advice stage to:
- “providing advice that strikes a fair balance between the interests of the debtor and their creditors”
Doesn’t this conflict with how the FCA would expect firms to deliver debt counselling to consumers? For example, if a debtor would be better-off financially going bankrupt and in reality there are no real downsides for them in going bankrupt, is it appropriate for an adviser to say: ah yes, but if you paid into an IVA for 5 years, this would be fairer to your creditors, wouldn’t it?
Generic -v- specific information
The SIP states that IPs “should minimise generic explanations and instead provide bespoke advice tailored to the debtor’s circumstances” (para 11) but also that IPs “should avoid using generic advantages and disadvantages and should use the details provided by the debtor to provide bespoke information tailored to the debtor’s circumstances” (para 17).
So: minimise or avoid?
Many pros and cons of the options available apply in all circumstances. For example, DROs and bankruptcies cost the same for everyone; a DMP can never be guaranteed to freeze all interest and charges; and no IVA will take effect unless 75% or more of creditors by value approves it. Does this make the information generic? Or does it just mean that no specific tailoring is required?
Of course, several other pros and cons do depend on the debtor’s circumstances, e.g. whether or not their occupation could be affected, how their home will be handled, whether an option can or will realistically deal with their debts and over what likely period.
I think that most firms’ procedures were already designed to deal with the big debtor-specific issues. However, in the past when advisers followed a script that rattled through each option, those details were often generic, including wriggle words such as: some occupations can be affected by bankruptcy. Also, when that advice was put down in writing, it tended to be yet more generic, largely relying on standard guide attachments detailing all options.
Now this will not do. Telephone/meeting advice must be specifically tailored so that pros and cons that do not apply to the debtor are omitted and so that the debtor can make realistic comparisons of their options. The “bespoke information tailored to the debtor’s circumstances” must also be confirmed in writing (para 17).
All “available” or “potential” options?
In some respects, the SIP’s requirement to cover the options has not changed. It still says that debtors must be “provided with an explanation of all the options available, the advantages and disadvantages of each, and the likely cost of each” (para 16g). In the past, this has been interpreted to mean, e.g., that if a DRO is not available to the debtor because they do not meet the criteria, then no more information on DROs needs to be provided to the debtor.
However, this seems no longer to be the case. Paras 4 and 5 require explanations to cover “all potential debt relief solutions” and under “Preparing for an IVA” the SIP states that the debtor needs to have had appropriate advice “including other options which have been discussed and discounted” (para 18a). “Discount” is a peculiar word to use, but these paras suggest to me that all potential options available to debtors in general should be covered with specific information about why an option may not be open to the debtor in question.
Something that I have seen work quite well but is by no means universal is where the initial advice gives an estimate of the time it would take to discharge all debts via a DMP. This is bespoke advice and usually helps to illustrate why the debtor has chosen not to pursue a DMP. I think it is also “comprehensible to the debtor”, which is another new requirement of SIP3.1 (para 10).
New items to add to initial advice scripts and letters
There are a host of other new items for initial advice scripts and letters scattered through several paragraphs in the SIP. Here are the main changes in paras 10, 15, 16 and 18:
- “whether the debtor will require additional specialist assistance, which will not be provided by the supervisor appointed, including the likely cost of that additional assistance, if known”
- Although the footnote to this requirement refers to “for example, support for a vulnerable individual”, the “specialist assistance” reference appears to have originated from the SIP3.2 (CVAs) changes. Therefore, I think it could include instructing agents or solicitors to deal with asset realisations (if this is envisaged for the IVA) or known legal issues. It should also add transparency to any firm that outsources work or introduces unusual tasks as routine on IVAs.
- “how [the likely duration of the IVA] might be affected by any provisions concerning the family home contained in the arrangement”
- “any circumstances which might affect the duration of the IVA and the potential impacts of any delays, complications or changes to the original IVA terms”
- This is slightly different from the old SIP3.1, which only required the potential delays or complications to be explained, not their potential impacts on the IVA and particularly on its anticipated duration.
- “the likely costs of implementation and how realisations will be applied to them”
- that the debtor is required to provide “full, accurate and proper disclosure”
- “explanations of any areas of concern about what the debtor has reported…” – another matter requiring special case-by-case attention – “… and of the consequences if the debtor fails to comply with their obligations”
- “an assessment of the risk of failure”
- Before the Proposal has even been drafted, IPs are expected to assess the risk of its failure?! It would be fair to inform debtors that there is always a risk that creditors reject an IVA Proposal, but this would not be a failure of the IVA. If a debtor cannot meet their core obligations, there is always the option of asking creditors to approve a variation. Ok, there is a risk that creditors would reject the variation, but how do we assess this risk at this early stage of providing initial advice? I suppose also that the IVA could fail if a debtor provided seriously misleading information or simply refused to cooperate, but again how are IPs supposed to assess the risk of this happening? An RPB staff member suggested this was intended to encompass obvious changes in the debtor’s circumstances that would lead to inabilities to meet terms, e.g. looming retirement or a serious illness. But if an IVA is considered an option for anyone, its terms surely will accommodate such events where reasonably expected and the terms should always provide for variations for unexpected events, shouldn’t they?
- the debtor’s “right to challenge a creditors’ decision and to make a complaint via the Insolvency Complaints Gateway”
- the SIP’s new definition of the role of the adviser – “providing advice that strikes a fair balance between the interests of the debtor and their creditors, in the context of identifying an appropriate and workable solution” to their difficulties – must be disclosed to debtors (and creditors)
- explaining that the debtor is obliged to cooperate and provide full “and accurate” disclosure “throughout the initial process and the duration of the IVA”
- ensuring that the debtor understands that the IVA “will involve a lengthy professional relationship with the supervisor”
While many of these may already have been covered in firms’ scripts and/or letters of advice, it is worth double-checking that those docs tick off every item including the new nuances suggested by the revised wording. In some respects, this could be like approaching a JIEB question: there are specific trigger words that some (i.e. RPB monitors) would expect to see in your docs and, if they’re there, you get the tick. I appreciate this is not how the RPBs want firms to approach compliance with the SIP, but, really, it is difficult to see how we can deliver the enormous prescriptive list of information in a practical, useful, way to debtors.
Providing “adequate time”
The SIP has a new principle, that debtors should be given:
- “adequate time to think about the consequences and alternatives before an IVA proposal is drawn up” (para 4)
How much time is adequate? Do we only learn that the time given was inadequate when someone complains that they didn’t have enough time?
Does the rest of the SIP explain application of this principle? The only other SIP reference to time is that the explanations of options’ pros and cons etc. “should be confirmed to the debtor in writing no later than the date on which an IVA proposal is issued” (para 17). Which IP is sending out IVA Proposals before advice letters?!
Although compliant with para 17, I would not expect that sending advice letters and IVA Proposals at the same time would meet para 4’s requirement for adequate time. So we are no further forward in determining this.
It seems likely to me that most debtors, having decided to go with an IVA, just want to get on with it asap. I accept that many debtors do not give as much attention to their options as they should, but you can only lead a horse to water, can’t you?
Most IVA engagement letters acknowledge consumers’ rights to a 14-day cooling-off period and provide that the debtor can instruct the firm to start work immediately. If the debtor signs the engagement letter, does this act as confirmation that they have had adequate time? If an engagement letter makes clear that this is what the debtor is confirming, then would this satisfy the RPBs?
A common criticism of the old SIP was that it did not include any duties in dealing with vulnerable debtors. Personally, I did not see that it needed to, as this is implicit in the Ethics Code’s principles of professional behaviour, integrity, professional competence and due care. But evidently this was not enough.
The new SIP now contains three references to vulnerability. As explained earlier, support for vulnerable persons should be mentioned at the advice stage where additional specialist assistance will be required. The second reference is in the context of meetings (see below).
The other mention of vulnerability appears in the “Assessment” section:
- “whether the debtor is subject to any factors that make them vulnerable and, if so, any necessary adjustments and, subject to the debtor’s consent, an accurate record of the vulnerabilities disclosed”
Most volume providers will already have procedures and staff training in place to address debtors’ vulnerability needs and it is about time that all other firms take these measures too. After all, IPs and their staff can encounter vulnerable people in situations other than IVAs.
In my experience, this has always been an area that has been poorly documented. The old SIP3.1 required procedures to ensure that assessments of a list of six factors are made “at each stage of the process”, i.e. at assessing the options available, preparing the IVA and implementing the IVA. I rarely saw formal documentation of these assessments and on cases where the goalposts were moved e.g. where some horse-trading with a creditor was necessary, I rarely saw that the old SIP’s assessments, e.g. the viability of the evolving IVA when compared with other available options, had been carried out.
In addition to the vulnerability point above, the list of factors for these assessments has changed:
- “whether the debtor is being sufficiently cooperative” has been removed
- “whether the debtor is likely to be able to fulfil their obligations under the terms of the arrangement for its duration” has been added
- the IVA’s prospect of being improved and implemented has changed to “successfully” implemented
- “whether a breathing space… is needed or available” has been added to the same considerations for an interim order
The old SIP did not state explicitly that these assessments had to be documented. The new SIP does. It also suggests that such assessments may be “conducted by way of a” call, in which case a call recording or note of the call should be retained.
Meetings in the 21st century
The old SIP wasn’t broken as regards meeting the debtor, but it was certainly dated. It required IPs to assess at each stage of the process whether a face-to-face meeting with the debtor was required.
“Face-to-face” has been replaced with “in-person meeting (whether a physical meeting or using conferencing technology)” (para 13). Is “in-person” any different from “face-to-face”? Online dictionaries appear to define them the same, i.e. the attendees must be physically present in the same place, not via the internet or telephone.
Ok, so it’s clear that the SIP uses in-person in a different way to common dictionaries and it doesn’t limit in-person to physical meetings, but what does it mean by “conferencing technology”? A conference can be conducted by telephone, can’t it? So, for the SIP’s purposes, does a telephone conference of just the adviser and the debtor constitute an “in-person meeting”?
Does it matter?
No, not really. If an in-person meeting is assessed as required – for example, per SIP3.1, based on the debtor’s understanding and vulnerability – then obviously the IP/staff should request one. If in-person excludes a telephone call but the IP/staff considers that a telephone call would be sufficient for their purposes, then this still complies with the SIP, as it merely means that the IP/staff have assessed that an in-person facetime etc. is not required.
What is important is that “all these meeting considerations and arrangements should be evidenced, documented and retained on the file”. Therefore, it is something to add to the SIP3.1 assessments form.
Where someone else does the advising
Another historically contentious topic has been the diligence measures expected of IPs who are introduced to potential IVAs by other parties. It seemed to me that two practices became prevalent: either the IP firm would develop relationships with introducers who they could trust to provide appropriate advice, basing that trust on direct involvement with the introducers’ processes and/or quality control measures of sample testing and mystery shopping; or the IP firm would treat the debtor as having received no advice previously, so they would start from scratch working through the SIP3.1 initial advice with the debtor.
The new SIP makes the former approach troublesome and effectively eliminates the latter approach.
Firstly, SIP3.1 requires IPs to “undertake sufficient due diligence on any referrer to identify whether they have advised the debtor” (para 12). I wonder if it is considered sufficient simply to ask them.
Then, where a referrer has provided advice, para 12 requires that:
- Contractual arrangements between the IP and the referrer “should extend to the insolvency practitioner maintaining access to all the referrer’s communications with the debtor, including call recordings or detailed written notes where calls were not recorded and transcripts of webchats or other communications were undertaken”
- How many IPs enter into contractual arrangements with referrers? Aren’t contracts normally with the firm?
- “Any shortcomings in the advice… should be remedied by the insolvency practitioner giving appropriate advice themselves”
- This seems to require the referrer’s advice in every case to be reviewed by the IP/firm. This is a tall order, isn’t it? Firms are going to have to devote significant staff resources to reviewing advice given, as this could take as much time as it would to give the advice in the first place.
But can’t an IP simply ignore any advice given by the referrer and start from scratch? This does not seem possible under the SIP, as the above are required “where advice was given by the referrer”. It does not seem to matter if the IP chooses to rely on that advice as discharging their SIP3.1 advice duties or not.
It will be interesting to see how the referral market changes as firms start implementing the new SIP.
What about referrers’ FCA authorisations?
Over the years, the RPBs have grappled with the question of whose responsibility it is to police the FCA authorisations of IVA referrers. The Protocol (Aug 2021) dealt with the issue unsatisfactorily, directing that IPs “should take steps to ensure” that all referrers (i.e. debt packagers and lead generators) should be FCA authorised, but it then went on to state that, if they were not authorised, the IP could simply give the advice themselves.
To a degree, I sympathised with this approach. After all, why should a consumer be turned away simply because they had the misfortune to encounter an unregulated introducer?
In its April 2021 members’ newsletter, the IPA published an article by the then-CEO stating:
- “Insolvency marketing… Any introducer, or lead generator, firm that is employed by a member should be FCA regulated. The reason why we have taken this step is to respond to some evidential unscrupulous introducer activity, not compliant with how insolvency advice and solutions should work for the consumer.”
I made enquiries of IPA staff: did they truly mean this for all insolvency appointments (even corporate cases??) of IPA members and how did they enshrine this new requirement into their regulatory framework? I learned that this was a standard on their “volume providers” only.
So I was not surprised to see some new measures in the revised SIP (para 12):
- Where a referrer has provided advice, the IP should identify “whether [the referrers] are required to be authorised by the… FCA for debt counselling or are able to rely on an exclusion or exemption in relation to the debt advice”
- Are we all clear on when an exclusion or when an exemption applies? What about the difference between giving information and giving advice? This isn’t just an internal assessment; the new SIP means that we need to know in order to draft the Proposal (see later)
- “The referrer’s authorisation status should be evidenced, or details sufficiently documented and retained in each case”
- “Any shortcomings in the advice, including in relation to the referrer’s authorisation, should be remedied by the insolvency practitioner giving appropriate advice themselves”
- What does this mean practically where there are shortcomings in relation to the referrer’s authorisation? Does it mean that whenever a referrer does not have the correct authorisation (or exclusion or exemption), the IP simply starts from scratch in providing advice? This would make the need to review the advice pretty pointless, wouldn’t it? …unless IPs are being expected to do something more, e.g. report the referrer for providing advice without authorisation? Or should IPs do this in all cases anyway, irrespective of whether there were any shortcomings in the referrer’s advice?
In my next post, I shall look at the other changes to the SIP, particularly those affecting the IVA Proposal and the Supervisor’s duties.