Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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Annual review: IPs, complaints and visits down, but sanctions up

The Insolvency Service’s 2016 Review of IP Regulation always makes for interesting reading. This year, the headlines include:

  • The number of IPs falls again
  • Regulatory sanctions generally increase and for one RPB in particular
  • Complaints handled by the RPBs drop by 28%… although 17% of all complaints seem to be held in the Gateway
  • Apparent missing of the mark for 3-yearly visits
  • Current regulatory priorities include IVAs and fees, whereas routine monitoring appears less popular

The report can be found at https://goo.gl/Jkwz19.

 

IP number falls again

The Review reveals another drop in the number of appointment-taking IPs. In fact, there was the same number on 1 January 2017 as there was on the same day in 2009: 1,303.

Is it a surprise that the number of appointment-taking IPs has dropped again? The 2016 insolvency statistics show modest increases in the numbers of CVLs and IVAs compared with 2015 and of course there was a bumper crop of MVLs in early 2016. Why is it that fewer IPs seem to be responsible for more cases?

My hunch is that the complexity of cases in general is decreasing and I suspect that the additional hurdles put in place as regards fees have encouraged IPs to look at efficiencies, to create slicker processes, and to be more risk-averse, less inclined to go out on a limb with the result that some cases are despatched more swiftly and require less IP input.

I also suspect the IP number for next January will show another drop. The expense and effort to adapt to the 2016 Rules will make some think again, won’t it?

Does the presence of the regulators breathing down one’s neck erode IPs’ keenness to remain in the profession? How worried should IPs be about the risk of a regulatory sanction?

 

Regulatory actions on the increase

The RPBs seem to have shown varying degrees of enthusiasm when it comes to taking regulatory action.

To me, this hints at regulatory scrutiny of a different kind. Is it coincidental that the ACCA issued proportionately far more sanctions than any other RPB last year? Could the Insolvency Service’s repeated monitoring visits to the ACCA over 2015 and 2016 have had anything to do with this spike?

What are behind these sanctions? Are they generated from the RPBs’ monitoring visits or from complaints?

 

Monitoring v complaints sanctions return to normality

Last year, I observed that for the first time RPBs’ investigations into complaints had generated more sanctions than their monitoring visits. Regulatory actions in 2016 returned to a more typical pattern.

Does this reflect a shifting RPB behaviour or is it more a result of the number of complaints received and/or the number of monitoring visits undertaken?

 

Dramatic fall in complaints

Well, no wonder there were fewer disciplinary actions on the back of complaints: the RPBs received 28% fewer complaints in 2016 than they did in 2015.

Why is this? Is it because fewer complaints were made? Undoubtedly, IVAs have generated a flood of complaints in recent years not least because of the issues surrounding ownership of PPI claims, but those issues were still live in 2016, weren’t they?

Perhaps we can explore this by looking at the complaint profile by case type:

Yes, it looks like IVAs continued to be contentious last year, although perhaps the worst is over. It seems, however, that the most significant drop has been felt in complaints relating to bankruptcies and liquidations. The reduction in bankruptcy complaints is understandable, as the numbers of bankruptcies have dropped enormously over the past few years, but liquidation numbers have kept reasonably steady, so I am not sure what is going on there.

But are fewer people really complaining or is there something else behind these figures?

 

An effective Complaints Gateway sift?

When the Complaints Gateway was set up in 2014, it was acknowledged that the Insolvency Service would ensure that complaints met some simple criteria before they were referred to the RPBs. There must be an indication of a breach of legislation, SIP or the Code of Ethics and the allegations should be capable of being supported with evidence. Where this is not immediately apparent, the Service seeks additional information from the complainant.

The graphs above are based on the complaints referred to the RPBs, so what is the picture as regards complaints received before the sifting process occurs?

This shows that the Complaints Gateway sifted out more complaints last year: the percentage rejected rose from 25% in 2014, to 27% in 2015, to 29% in 2016.

The Insolvency Service’s review explains that in 2016 a new criterion was added: “Complainants are now required in the vast majority of cases to have raised the matter of concern with the insolvency practitioner in the first instance before the complaint will be considered by the Gateway”. This is a welcome development, but it did not affect the numbers much: it resulted in only 13 complaints being turned away for this reason.

But this rejected pile is not the whole story. The graph also demonstrates that a significant number of complaints – 144 (17%) – were neither rejected nor referred last year, which is a much larger proportion than previous years.   Presumably these complaints are being held pending further exchanges between the Service and the complainant. Personally, I am comforted by this demonstration of the Service’s diligence in managing the Gateway, but I hope that this does not hint at a system that is beginning to get snarled up.

 

How many complaints led to sanctions?

When I looked at the Insolvency Service’s review last year, I noted that the IPA’s sanctions record appeared out of kilter to the other RPBs. It is interesting to note that 2016 appears to have been a more “normal” year for the IPA, but instead the ACCA seems to have had an exceptional year. As mentioned above, I wonder if the Insolvency Service’s focus on the ACCA has had anything to do with this unusual activity (I appreciate that 2010 was another exceptional year… and I wonder if the fact that 2010 was the year that the Insolvency Service got heavy with its SIP16-reviewing exercise had anything to do with that particular flurry).

The obvious conclusion to draw from this graph might be that an ACCA-licensed IP has a 1 in 3 chance that any complaint will result in a sanction. However, perhaps these IPs can rest a little easier, given that the ACCA’s complaints-handling is now being dealt with by the IPA.

What about sanctions arising from monitoring visits? How do the RPBs compare on that front?

 

All but one RPB reported an increase in monitoring sanctions

These percentages look rather spectacular, don’t they? It gives the impression that on average almost one third of all monitoring visits result in some kind of negative outcome… and it appears that 90% of all the CAI’s monitoring visits gave rise to a negative outcome! Well, not quite. It is likely that some monitoring visits led to more than one black mark, say a plan for improvement and a targeted visit to review how those plans had been implemented.

Nevertheless, it is interesting to note that almost all RPBs recorded increases in the number of negative outcomes from monitoring visits over the previous year. I am not sure why the IPA seems to have bucked the trend. It will be interesting to see how the populations of ACCA and IPA-licensed IPs fare this year, as they are now being monitored and judged by the same teams and Committees.

 

How frequently are visits being undertaken?

The Principles for Monitoring, which forms part of a memorandum of understanding (“MoU”) between the Insolvency Service and the RPBs, state that the period between monitoring visits “is not expected to significantly exceed three years but may, where satisfactory risk assessment measures are employed, extend to a period not exceeding six years”. However, most if not all the RPBs publicise that their monitoring programmes are generally on a 3-yearly cycle.

The following graph shows that the RPBs are not quite meeting this timescale:

If we look at each RPB’s visits for the past 3 years as a percentage of their appointment-taking licence-holders, how far off the 100% mark were they..?

ICAEW’s missing of the mark is not surprising, given that they publicise that their IPs in the larger practices are on 6-year cycles. At the other end of the spectrum is the ACCA, which managed to visit all their IPs over the past 3 years and then some. However, as we know, the ACCA has relinquished its monitoring function to the IPA, so it seems unlikely that this will continue.

 

What is the future for monitoring visits?

The Insolvency Service’s 2015 review hinted that the days of the MoU may have been numbered. Their 2016 review strengthens this message:

“We propose to withdraw the MoU as soon as is reasonably feasible, subject to working through some final details”.

The review goes on to explain that the Service will be adding to their existing guidance (https://goo.gl/wDHElg). As it currently stands, prescriptive requirements such as the frequency of monitoring visits is conspicuously absent from this guidance. Instead, it is largely outcomes-based and reflects the Regulator’s Code to which the Insolvency Service itself is subject and that emphasises the targeting of monitoring resources where they should be most effective at addressing priority risks. The Service itself seems to be lightening up on its own monitoring visits: the review states that, having completed their round of full monitoring visits to the RPBs, they are now moving towards a number of risk based themed reviews. If this approach filters through to the RPBs’ monitoring visits, will we see a removal of the 3-yearly standard cycle?

 

Current priorities for the regulators

Does the 2016 review reveal any priorities for this year?

Not unsurprisingly, given one particularly high profile failure, IVAs feature heavily. The review refers to “general concerns around the volume IVA business model and developments in practice” and continues:

“The Insolvency Service is working with the profession to tackle some of these concerns; for example, through changes to guidance on monitoring and protections for client funds, and also a review of insurance arrangements. We are also engaging with stakeholder groups to better understand their concerns and how these may be tackled. We expect that this will be a key focus of our work for the coming year.”

Other projects mentioned in the review include:

  • Possible legislative changes to the bonding regime – consultation later this year;
  • Progression of the Insolvency Service’s recommendation that the RPBs introduce a compensation mechanism for complainants who have suffered inconvenience, loss or distress;
  • Publication of the Insolvency Service’s review into the RPBs’ monitoring and regulation processes, including consistency of outcomes, the extent of independence between the membership and regulatory functions, and the RPBs’ financial capabilities – report to be released within 12 months;
  • Progress on a review into the RPBs’ approach to the regulatory objective to encourage a profession which delivers services at a fair and reasonable cost, including how they are assessing compliance with the Oct-15 fee estimate regime – report to be released by the end of the year; and
  • A consultation on revisions to the Code of Ethics – expected in the spring.

 

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Monitoring the monitors: targeting consistency and transparency

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The Insolvency Service’s 2014 Review had the target of transparency at its core. This time, the Insolvency Service has added consistency.  Do the Annual Reviews reveal a picture of consistency between the RPBs?

My second post on the Insolvency Service’s 2015 Annual Review of IP regulation looks at the following:

  • Are the RPBs sticking to a 3-year visit cycle?
  • How likely is it that a monitoring visit will result in some kind of regulatory action?
  • What action are the RPBs likely to take and is there much difference between the RPBs?
  • What can we learn from 6 years of SIP16 monitoring?
  • How have the RPBs been faring in their own monitoring visits conducted by the Insolvency Service?
  • What have the Service set in their sights for 2016?

 

RPBs converge on a 3-yearly visit cycle

The graph of the percentages of IPs that had a monitoring visit last year gives me the impression that a 3-yearly visit cycle has most definitely become the norm:

Graph7

(Note: because the number of SoS IPs dropped so significantly during the year – from 40 to 28 – all the graphs in this article reflect a 2015 mid-point of SoS-authorised IPs of 34.)

Does this mean that IPs can predict the timing of their next routine visit? I’m not sure.  It seems to me that some standard text is slipping into the Insolvency Service’s reports on their monitoring visits to the RPBs.  The words: “[RPB] operates a 3-year cycle of rolling monitoring visits to its insolvency practitioners. The nature and timing of visits is determined annually on a risk-assessment basis” have appeared in more than one InsS report.

What do these words mean: that every IP is visited once in three years, but some are moved up or down the list depending on their risk profile? Personally, this doesn’t make sense to me: either visits are timed according to a risk assessment or they are carried out on a 3-year cycle, I don’t see how you can achieve both.  If visit timings are sensitive to risk, then some IPs are going to receive more than one visit in a 3-year period and, unless the RPB records >33% of their IP number as having a visit every year (which the graph above shows is generally not the case), the corollary will be that some IPs won’t be visited in a 3-year period.

My perception on the outside is that, generally, the timing of visits is pretty predictable and is now pretty-much 3-yearly. I’ve seen no early parachuting-in on the basis of risk assessments, although I accept that my field of vision is very narrow.

 

Most RPBs report reductions in negative outcomes from monitoring visits

The following illustrates the percentage of monitoring visits that resulted in a “negative outcome” (my phrase):

Graph8

As you can see, most RPBs are clocking up between c.10% and 20% of monitoring visits leading to some form of negative consequence and, although individual records have fluctuated considerably in the past, the overall trend across all the regulatory bodies has fallen from 30% in 2008 to 20%.

However, two bodies seem to be bucking the trend: CARB and the SoS.

Last year, I didn’t include CARB (the regulatory body for members of the Institute of Chartered Accountants in Ireland), because its membership was relatively small. It still licenses only 41 appointment-taking IPs – only 3% of the population – but, with the exit of SoS authorisations, I thought it was worth adding them to the mix.

I am sure that CARB’s apparent erratic history is a consequence of its small population of licensed IPs and this may well explain why it is still recording a much greater percentage of negative outcomes than the other RPBs. Nevertheless, CARB does seem to have recorded exceptionally high levels for the past few years.

The high SoS percentage is a little surprising: 50% of all 2015 visits resulted in some form of negative outcome – these were all “plans for improvement”. CARB’s were a mixture of targeted visits, undertakings and one penalty/referral for disciplinary consideration.

So what kind of negative outcomes are being recorded by the other RPBs? Are there any preferred strategies for dealing with IPs falling short of expected standards?

 

What responses are popular for unsatisfactory visits?

The following illustrates the actions taken by the top three RPBs over the last 4 years:

Graph9

* The figures for ICR/self certifications requested and further visits should be read with caution. These categories do not appear in every annual review, but, for example, it is clear that RPBs have been conducting targeted visits, so this graph probably does not show the whole picture for the 2012 and 2013 outcomes.  In addition, of course the ICAEW requires all IPs to carry out annual ICRs, so it is perhaps not surprising that this category has rarely featured.

I think that all this graph suggests is that there is no trend in outcome types!  I find this comforting: it might be difficult to predict what outcome to expect, but it suggests to me that the RPBs are flexible in their approaches, they will implement whatever tool they think is best fitted for the task.

 

Looking back on 6 years of SIP16 monitoring
We all remember how over the years so many people seemed to get hot under the collar about pre-packs and we recall some appallingly misleading headlines that suggested that around one third of IPs were failing to comply with regulations. Where have the 6 years of InsS monitoring of SIP16 Statements got us?  I will dodge that question, but I’ll simply illustrate the statistics:

Graph10

Note: several years are “estimates” because the InsS did not always review all the SIP16 Statements they received. Also, the Service ended its monitoring in October 2015.  Therefore, I have taken the stats in these cases and pro rated them up to a full year’s worth.

Does the graph above suggest that a consequence of SIP16 monitoring has been to discourage pre-packs? Well, have a look at this one…

Graph11

As you can see, the dropping number of SIP16s is more to do with the drop in Administrations. In fact, the percentage of pre-packs has not changed much: it was a peak of 31% of all Administrations in 2012 and was at its lowest in 2014 at 24%.

I guess it could still be argued that the SIP16 scrutiny has persuaded some to sell businesses/assets in the pre (or immediately post) liquidation period, rather than use Administration.  I’m not sure how to test that particular theory.

So, back to SIP16 compliance, the graph-but-one above shows that the percentage of Statements that were compliant has increased. It might be easier to see from the following:

Graph12

Unequivocal improvements in SIP16 compliance – there’s a good news story!

A hidden downside of all this focus on improving SIP16 compliance, I think, is the costs involved in drafting a SIP16 Statement and then, as often happens, in getting someone fairly senior in the practice to double-check the Statement to make sure that it ticks every last SIP16 box.  Is this effort a good use of resources and of estate funds?

Now that the Insolvency Service has dropped SIP16 monitoring, does that mean we can all relax a bit? I think this would be unwise.  The Service’s report states that it “will review the outcome of the RPBs’ consideration of SIP16 compliance and will continue to report details in the Annual Review”, so I think we can expect SIP16 to remain a hot regulatory topic for some time to come.

 

The changing profile of pre-packs

The Service’s reports on SIP16 Statements suggest other pre-pack trends:

Graph13

Personally, I’m surprised at the number of SIP16 Statements that disclose that the business/assets were marketed by the Administrator: last year it was 56%. I’m not sure if that’s because some SIP16 Statements are explaining that the company was behind some marketing activities, but, if that’s not the reason, then 56% seems very low to me.  It would be interesting to see if the revised SIP16, which introduced the “marketing essentials”, makes a difference to this rate.

 

Have some pity for the RPBs!

The Service claimed to have delivered on their commitments in 2015 (incidentally, one of their 2014 expectations was that the new Rules would be made in the autumn of 2015 and they would come into force in April 2016 – I’m not complaining that the Rules are still being drafted, but I do think it’s a bit rich for the Executive Foreword to report pleasure in having met all the 2014 “commitments”).

The Foreword states that the reduction in authorising bodies is “a welcome step”. With now only 5 RPBs to monitor and the savings made in dropping SIP16 monitoring (which was the reported reason for the levy hike in 2009), personally I struggle to see the Service’s justification for increasing the levy this year.  The report states that it was required in view of the Service’s “enhanced role as oversight regulator”, but I thought that the Service did not expect to have to flex its new regulatory muscles as regards taking formal actions against RPBs or directly against IPs.

However, the tone of the 2015 Review does suggest a polishing of the thumb-screws. The Service refers to the power to introduce a single regulator and states that this power will “significantly shape” the Service’s work to come.

In 2015, the Service carried out full monitoring visits to the ICAEW, ICAS and CARB, and a follow-up visit to the ACCA. This is certainly more visits than previous years, but personally I question whether the visits are effective.  Of course, I am sure that the published visit reports do not tell the full stories – at least, I hope that they don’t – but it does seem to me that the Service is making mountains out of some molehills and their reports do give me the sense that they’re concerned with processes ticking the Principles for Monitoring boxes, rather than being effective and focussing on good principles of regulation.

For example, here are some of the molehill weaknesses identified in the Service’s visits that were resisted at least in part by some of the RPBs – to which I say “bravo!”:

  • Pre-visit information requested from the IPs did not include details of complaints received by the IP. The ICAEW responded that it was not convinced of the merits of asking for this on all visits but agreed to “consider whether it might be appropriate on a visit by visit basis”.
  • Closing meeting notes did not detail the scope of the visit. The ICAEW believed that it is important for the closing meeting notes to clearly set out the areas that the IP needs to address (which they do) and it did not think it was helpful to include generic information… although it seems that, by the time of the follow-up visit to the ICAEW in February 2016, this had been actioned.
  • The Service remains “concerned” that complainants are not provided with details of the independent assessor on their case. “ACCA regrets it must continue to reject this recommendation as ACCA does not believe naming assessors will add any real value to the process… There is also the risk of assessors being harassed by complainants where their decision is not favourable to them.”
  • Late bordereaux were only being chased at the start of the following month. The Service wanted procedures put in place to “ensure that cover schedules are provided within the statutory timescale of the 20th of each month and [to] follow up any outstanding returns on 21st or the next working day of each month”. Actually, CARB agreed to do this, but it’s just a personal bug-bear of mine. The Service’s report to the ICAEW went on about the “vital importance” of bonding – with which I agree, of course – but it does not follow that any bordereaux sent by IPs to their RPB “demonstrate that they have sufficient security for the performance of their functions”. It simply demonstrates that the IP can submit a schedule on time every month. I very much suspect that bordereaux are not checked on receipt by the RPBs – what are they going to do: cross-check bordereaux against Gazette notices? – so simply enforcing a zero tolerance attitude to meeting the statutory timescale is missing the point and seems a waste of valuable resources, doesn’t it?

 

Future Focus?

The Annual Review describes the following on the Insolvency Service’s to-do list:

  • Complaint-handling: in 2015, the Service explored the RPBs’ complaint-handling processes and application of the Common Sanctions Guidance. The Service has made a number of recommendations to improve the complaints process and is in discussion with the RPBs. They expect to publish a full report on this subject “shortly”.
  • Debt advice: also in 2015, they carried out a high-level review of how the RPBs are monitoring IPs’ provision of debt advice and they are currently considering recommendations for discussion with the RPBs.
  • Future themed reviews: The Service is planning themed reviews (which usually mean topic-focussed questionnaires to all RPBs) over 2016 and 2017 covering: IP monitoring; the fees rules; and pre-packs.
  • Bonding: the Service has been examining “the type and level of cover offered by bonds and considering both the legislative and regulatory arrangements to see if they remain fit for purpose”. They are cagey about the outcomes but do state that they “will work with the industry to effect any regulatory changes that may be necessary” and they refer to “any legislative change” being subject to consultation.
  • Relationship with RPBs: the Service is contemplating whether the Memorandum of Understanding (“MoU”) with the RPBs is still needed, now that there are statutory regulatory objectives in place. The MoU is a strange animal – https://goo.gl/J6wmuN. I think that it reads like a lot of the SIPs: a mixture of principles and prescription (e.g. a 10-day acknowledgement of complaints); and a mixture of important standards and apparent OTT trivia. It would be interesting to see how the Service approaches monitoring visits to the RPBs if the MoU is removed: they will have to become smarter, I think.
  • Ethics? The apparent focus on ethical issues seems to have fallen from the list this year. In 2015, breaches of ethics moved from third to second place in the list of complaints received by subject matter (21% in 2014 and 27% in 2015), but reference to the JIC’s work on revising the Ethics Code has not been repeated in this year’s Review. Presumably the work is ongoing… although there is certainly more than enough other tasks to keep the regulators busy!

 

 


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Is the IP regulation system fair?

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The Insolvency Service’s 2015 review of IP regulation was released in March and, as usual, I’ve dug around the statistics in comparison with previous years.

They indicate that complaint sanctions have increased (despite complaint numbers dropping), but monitoring sanctions have fallen. Why is this?  And why was one RPB alone responsible for 93% of all complaints sanctions?

The Insolvency Service’s report can be found at https://goo.gl/HlATlf.

I honestly had no idea that the R3 member survey issued earlier today was going to ask about the effectiveness of the regulatory system. I would encourage R3 members to respond to the survey (but don’t let this blog post influence you!).

IP number falls to 6-year low

I guess it was inevitable: no IP welcomes the hassle of switching authorising body and word on the street has always been that being authorised by the SoS is a far different experience to being licensed by an RPB. Therefore, I think that the withdrawal from authorising by the SoS (even with a run-off period) courtesy of the Deregulation Act 2015 and the Law Societies was likely to affect the IP numbers.

Here is how the landscape has shifted:

Graph1

As you can see, the remaining RPBs have not gained all that the SoS and Law Societies have lost and ACCA’s and CARB’s numbers have dropped since last year. It is also a shame to note that, not only has the IP number fallen for the first time in 4 years, it has also dropped to below the 2010 total.

Personally, I expect the number to drop further during 2016: I am sure that the prospect of having to adapt to the new Insolvency Rules 2016 along with the enduring fatigue of struggling to get in new (fee-paying) work and of taking the continual flak from regulators and government will persuade some to hang up their boots. I also don’t see that the industry is attracting sufficient new joiners who are willing and able to take up the responsibility, regardless of the government’s partial licence initiative that has finally got off the ground.

Maybe this next graph will make us feel a bit better…

Number of regulatory sanctions fall

Graph2

Although the numbers are spiky, I guess there is some comfort to be had in seeing that the regulatory bodies issued fewer sanctions against IPs in 2015. [To try to put 2010’s numbers into context, you’ll remember that 1 January 2009 was the start of the Insolvency Service’s monitoring of the revised SIP16, which led to a number of referrals to the RPBs, although I cannot be certain that this was behind the unusual 2010 peak in sanctions.]

But what interests me is that the number of sanctions in 2015 arising from complaints far outstripped those arising from monitoring visits, which seems quite a departure from the picture of previous years. What is behind this?  Is it simply a consequence of our growing complaint-focussed society?

Complaints on the decrease

Graph3

Well actually, as you can see here, it seems that fewer complaints were registered last year… by quite a margin.

I confess that some of these years are not like-for-like comparisons: before the Complaints Gateway, the RPBs were responsible for reporting to the Insolvency Service how many complaints they had received and it is very likely that they incorporated some kind of filter – as the Service does – to deal with communications received that were not truly complaints. However, it cannot be said for certain that the RPBs’ pre-Gateway filters worked in the same way as the Service’s does now.  Nevertheless, what this graph does show is that 2015’s complaints referred to the regulatory bodies were less than 2014’s (which was c.half a Gateway year – the “Gateway (adj.)” column represents a pro rata’d full 12 months of Gateway operation based on the partial 2014 Gateway number).

It is also noteworthy that the Insolvency Service is chalking up a similar year-on-year percentage of complaints filtered out: in 2014, this ran at 24.5% of the complaints received, and in 2015, it was 26.5%.

So, if there were fewer complaints lodged, then why have complaints sanctions increased?

How long does it take to process complaints?

The correlation between complaints lodged and complaint sanctions is an interesting one:

Graph4

Is it too great a stretch of the imagination to suggest that complaint sanctions take somewhere around 2 years to emerge? I suggest this because, as you can see, the 2010/11 sanction peak coincided with a complaints-lodged trough and the 2013 sanctions trough coincided with a complaints lodged peak – the pattern seems to show a 2-year shift, doesn’t it..?

I am conscious, however, that this could simply be a coincidence: why should sanctions form a constant percentage of all complaints?  Perhaps the sanctions simply have formed a bit of a random cluster in otherwise quiet years.

Could there be another reason for the increased complaints sanctions in 2015?

One RPB breaks away from the pack

Graph5

How strange! Why has the IPA issued so many complaints sanctions when compared with the other RPBs?

I have heard more than one IP suggest that the IPA licenses more than its fair share of IPs who fall short of acceptable standards of practice. Personally, I don’t buy this.  Also more sanctions don’t necessarily mean there are more sanctionable offences going on.  It reminds me of the debates that often surround the statistics on crime: does an increase in convictions mean that there are more crimes being committed or does it mean that the police are getting better at dealing with them?

Nevertheless, the suggestion that the IPA’s licensed population is different might help explain the IPA peak in sanctions, mightn’t it? To test this out, perhaps we should compare the number of complaints received by each RPB.

Graph6

Ok, so yes, IPA-licensed IPs have received more complaints than other RPBs (although SoS-authorised IPs came out on top again this past year).  If the complaints were shared evenly, then 58% of all IPA-licensed IPs would have received a complaint last year, compared to only 43% of those licensed by the other three largest RPBs.  I hasten to add that, personally, I don’t think this indicates differing standards of practice depending on an IP’s licensing body: it could indicate that IPA-licensed (and perhaps also SoS-authorised) IPs work in a more complaints-heavy environment, as I mention further below.

Nevertheless, let’s see how these complaints-received numbers would flow through to sanctions, if there were a direct correlation. For simplicity’s sake, I will assume that a complaint lodged in 2013 concluded in 2015 – although I think this is highly unlikely to be the average, I think it could well be so for the tricky complaints that lead to sanctions.  This would mean that, across all the RPBs (excluding the Insolvency Service, which has no power to sanction SoS-authorised IPs in respect of complaints), 12% of all complaints led to sanctions.  On this basis, the IPA might be expected to issue 36 complaint-led sanctions, so this doesn’t get us much closer to explaining the 76 sanctions issued by the IPA.

I can suggest some factors that might be behind the increase in the number of complaints sanctions granted by the IPA:

  • The IPA licenses the majority of IVA-specialising IPs, which do seem to have attracted more than the average number of sanctions: last year, two IPs alone were issued with seven reprimands for IVA/debtor issues.
  • The IPA’s process is that matters identified on a monitoring visit that are considered worthy of disciplinary action are passed from the Membership & Authorisation Committee to the Investigation Committee as internal complaints. Therefore, I think this may lead to some IPA “complaint” sanctions actually originating from monitoring visits. However, analysis of the sanctions arising from monitoring visits (which I will cover in another blog) indicates that the IPA sits in the middle of the RPB pack, so it doesn’t look like this is a material factor.
  • Connected to the above, the IPA’s policy is that any incidence of unauthorised remuneration spotted on monitoring visits is referred to the Investigation Committee for consideration for disciplinary action. Given that it seems that such incidences include failures that have already been rectified (as explained in the IPA’s September 2015 newsletter) and that unauthorised remuneration can arise from a vast range of seemingly inconspicuous technical faults, I would not be surprised if this practice were to result in more than a few unpublished warnings and undertakings.

But this cannot be the whole story, can it? The IPA issued 93% of all complaints sanctions last year, despite only licensing 35% of all appointment-takers.  The previous year followed a similar pattern: the IPA issued 82% of all complaints sanctions.

To put it another way, over the past two years the IPA issued 111 complaints sanctions, whilst all the other RPBs put together issued only 14 sanctions.

What is going on? It is difficult to tell from the outside, because the vast majority of the sanctions are not published.  Don’t get me wrong, I’m not complaining about that.  If the sanctions were evenly-spread, I could not believe that c.16% of all IPA-licensed IPs conducted themselves so improperly that they merited the punitive publicity that .gov.uk metes out on IPs (what other individual professionals are flogged so publicly?!).

The Regulators’ objective to ensure fairness

This incongruence, however, makes me question the fairness of the RPBs’ processes.  It cannot be fair for IPs to endure different treatment depending on their licensing body.

You might say: what’s the damage, when the majority of sanctions went unpublished? I have witnessed the anguish that IPs go through when a disciplinary committee is considering their case, especially if that process takes years to conclude.  It lingered like a Damocles Sword over many of my conversations with the IPs.  The apparent disparity in treatment also does not help those (myself included) that argue that a multiple regulator system can work well.

One of the new regulatory objectives introduced by the Small Business Enterprise & Employment Act 2015 was to secure “fair treatment for persons affected by [IPs’] acts and omissions”, but what about fair treatment for IPs?  In addition, isn’t it possible that any unfair treatment on IPs will trickle down to those affected by their acts and omissions?

The Insolvency Service has sight of all the RPBs’ activities and conducts monitoring visits on them regularly. Therefore, it seems to me that the Service is best placed to explore what’s going on and to ensure that the RPBs’ processes achieve consistent and fair outcomes.

 

In my next blog, I will examine the Service’s monitoring of the RPBs as well as take a closer look at the 2015 statistics on the RPBs’ monitoring of IPs.

 

 

 

 

 

 


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SIP1: must you make a formal complaint?

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Sorry for the long silence. SIP9/fees have ruled my life for the past few months and I’ll share my thoughts on those when the fog has cleared.  In the meantime, I thought I’d catch up on something far less controversial (you’d think!): SIP1’s requirement to “report” IPs to the Complaints Gateway or to the RPB.  Does this mean that reports will be handled as full-blown complaints or is there another way?

Why shouldn’t all reports be handled as formal complaints? 

Well, imagine you are a licensed IP working for other licensed IPs. Maybe you’re in that boat now.  Maybe you’re in a firm’s compliance department.  Maybe you’re a case manager.  Say you become uncomfortable about something you’ve seen, something that you think triggers the SIP1 reporting requirement.  Should you to report it via the Insolvency Service’s Complaints Gateway?

What would happen next? Would the RPB write to the IP providing a copy of the report?  The IPA’s complaints procedure, for example, states that this is done in all complaint cases.

Clearly, this is unhelpful. But does elevating the need to report concerns to a SIP requirement rule out any alternative to lodging a formal complaint?

Does SIP1 allow IPs to discharge their reporting duty by whistle-blowing to the RPB?

SIP1 states:

“An insolvency practitioner who becomes aware of any insolvency practitioner who they consider is not complying or who has not complied with the relevant laws and regulations and whose actions discredit the profession, should report that insolvency practitioner to the complaints gateway operated by the Insolvency Service or to that insolvency practitioner’s recognised professional body.”

This appears to give IPs a choice: either they may lodge a (formal) complaint via the Gateway or they can report to the IP’s RPB.

What is the destiny of a “report” to the RPB?

The MoU between the Insolvency Service and the RPBs (https://goo.gl/ICqHEo) suggests that there is no practical distinction.  It defines a complaint as “a communication about a person authorised as an insolvency practitioner expressing dissatisfaction with that person’s conduct as it relates to his or her professional work as an insolvency practitioner in Great Britain, or with the conduct of others carrying out such work on that person’s behalf.”  The MoU then states: “Each Recognised Professional Body will forward to the Authority any Complaint received by it within five Working Days of receipt” and then the Authority, the Insolvency Service, will process the Complaint in the usual manner.

So this would appear to complete the circle. It appears that however an IP seeks to report a matter, it is going to be handled as a complaint sooner or later.

Is there no way to whistle-blow to a regulatory body?

So it seems that all reports will end up in the Complaints Gateway. This seems wrong, doesn’t it?  After all, the Insolvency Service is a “prescribed person” for the purposes of whistle-blowing about misconduct in companies generally (https://goo.gl/cIkGL4).  It doesn’t make sense to leave those working within the insolvency profession with nowhere to turn.

Surely the Service appreciates that IPs (and others employed by IPs) might want to use a far more discreet method than a formal complaint to bring their concerns to the attention of the regulatory bodies. I certainly hope that the Service would not look to enforce this aspect of the MoU against the RPBs.  We must be able to trust our regulatory bodies to act sensibly when dealing with such sensitive situations.

To be honest, I haven’t asked anyone at the Service for comments. However, I have sought the views of some within the RPBs.

The IPA’s view

Alison Curry gave me this answer:

“If the practitioner is reporting regulatory intelligence, in discharge of their SIP 1 obligations (and their membership rules, as the case may be) then they may do so to the RPB of the practitioner reported upon.  In such an instance, presumably, they could maintain anonymity if they chose, but could not be expected to be appraised of an outcome (i.e. they would not be a complainant in the formal sense). Presumably then the RPB will have a process by which that intelligence is fed into their monitoring processes. We certainly do and expect the IS to be monitoring that others do also.”

Alison also pointed out that, as information may end up in the monitoring stream, it could result in a referral to the Investigation Committee (which deals with complaints). However, this would be a referral from the Membership & Authorisation Committee (which deals with monitoring), so I think the whistle-blower’s identity would be unlikely to feature in the “complaint” referral, as the chances are that the IPA’s monitoring team will have gathered their own evidence in order for the M&A Committee to consider the issue in the first place.

ICAS’ view

David Menzies gave me this answer:

“You will be aware that the normal complaint procedures as agreed by the IS and the RPBs are that complaints should be made through the Complaints Gateway. RPBs also receive regulatory intelligence and it is possible that information relating to an IP’s misconduct could also be received by the RPB in that manner. In reality whether information is submitted through the complaints gateway or via an RPB is not critical, the important aspect being that the information is transmitted in the first place…

“The issue of the reporter’s identity being disclosed is of course something that no guarantees can ever be given on. If matters eventually proceeded to a disciplinary tribunal then certain documents would have to be put before the tribunal and that would most likely include correspondence with the complainer. There is also the possibility that if the IP who was being complained against submitted a subject access request under Data Protection legislation then it may be difficult to justify not disclosing the correspondence containing the complaint. There may well be circumstances where we can withhold a complainant’s identity but I think that this would need to be looked at on a case by case basis.”

The Other RPBs

I won’t quote my ACCA contact here, as it wasn’t an “official” response. Nevertheless, I did learn that ACCA’s monitoring team receives intelligence – from IPs as well as the other RPBs – and this is similarly absorbed into its monitoring processes, rather than put through the formal complaints process where the discloser doesn’t wish to lodge a formal complaint.

I suspect also that this is the case with the ICAEW and, to be fair to them, they were hoping to revert to me with a consensus view once this matter had been discussed at the Regulators’ Forum a couple of months’ ago. I expect that the demands of other SIP revisions have overtaken the publication of any guidance on this matter.

So whistle-blowing to the IP’s RPB can count as SIP1 compliance?

From the comments I have received, it would seem so. It also seems to me that the RPBs would not treat it as a formal complaint and thus pass it to the Insolvency Service for processing via the Gateway.  Confidential intelligence-delivery worked within RPBs before the revised SIP1.  The revision certainly was not intended to close any doors that were previously open.

What about your duty under your RPB’s Membership Rules?

Within all the RPBs’ membership rules/regulations, there is an obligation to report the misconduct of another member. The purpose of the revised SIP1 was to expand this obligation so that, in effect, the same rules apply whether the offending IP is a member of your RPB or not.

However, this means that, technically, if you have lodged a complaint via the Insolvency Service’s Gateway, you may need to report the matter also to your RPB so that you comply with its membership rules. This does seem a bit of unnecessary duplication, however, and I would hope that an IP would not be beaten about the head for complaining only to the Gateway.

What acts should be reported?

As quoted above, SIP1 sets out two criteria:

  • non-compliance with “the relevant laws and regulations” AND
  • actions that discredit the profession.

I am pleased to see that, at least with the IPA, its rules have been amended in the past few months clearly to bring them in line with the revised SIP1. Previously, their rules had stated “misconduct” needed to be reported, which could have constituted simply a breach of a SIP, statutory provision or the Ethics Code.  Now, the IPA has also imported reference to discrediting the profession (although also, interestingly, discredit to either the member, the IPA, or any other member) as a must-have in order to trigger the reporting requirement.

What actions discredit the profession? Actions at the far end of the spectrum will be blindingly obvious, but I reckon there is a huge swathe of greyness where subjectivity reigns.  To be fair though, we have always lived with this issue.  The revised SIP1 wasn’t meant to make our lives more difficult – I don’t think so anyway – but rather to emphasise our personal responsibility to keep our profession clean.  With this objective in mind, I have no complaints about the revised SIP1.


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Are regulators reacting to the Insolvency Service’s gaze?

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In this post, I analyse the Insolvency Service’s annual review of IP regulation, asking the following questions:

  • Are the regulators visiting their IPs once every three years?
  • How likely is it that a monitoring visit will result in some kind of negative outcome?
  • How likely is a targeted visit?
  • Has the Complaints Gateway led to more complaints?
  • What are the chances of an IP receiving a complaint?
  • How likely is it that a complaint will result in a sanction?

The Insolvency Service’s reports can be found at: http://goo.gl/MZHeHK.  As I did last year (http://wp.me/p2FU2Z-6C), I have only focussed attention on the authorising bodies with the largest number of IPs (but included stats for the others in the figures for “all”) and only in relation to appointment-taking IPs.  Again, regrettably, I don’t see how I can embed the graphs into this page, so they can be found at: Graphs 23-04-15.  You might find it easier to read the full article along with the graphs here(2).

 

Monitoring Visits

  • Are the regulators visiting their IPs once every three years?

Graph (i) (here(2)) looks at how much of each regulator’s population has been visited each year:

Is it a coincidence that the two regulators that were visited by the Service last year – the ACCA and the Service’s own monitoring team – have both reported huge changes in monitoring visit numbers?  Of course, this graph also shows that those two regulators carried out significantly less monitoring visits in 2013, so perhaps they were already conscious that they had some catching-up to do.

I’m not convinced that it was the Service’s visit that prompted ACCA’s increase in inspections: the Service’s February 2015 report on its 2014 visits to the ACCA did not disclose any concerns regarding the visit cycle and I think it is noteworthy that ACCA had a lull in visits in 2010, so perhaps the 2013 trough simply reflects the natural cycle.  Good on the Insolvency Service, though, for exerting real efforts, it seems, to get through lots of monitoring visits in 2014!

The trend line is interesting and reflects, I think, the shifting expectations.  The Service’s Principles for Monitoring continue to set the standard of a monitoring visit once every three years with a long-stop date of six years if the regulator employs satisfactory risk assessment processes.  However, I think most regulators now profess to carry out 3-yearly visits as the norm and most seem to be achieving something near this.

The ICAEW seems a little out-of-step with the other regulators, though.  At their 2014 rate, it would take 4½ years to get around all their IPs.  The report does explain, however, that the ICAEW also carried out 32 other reviews, most of which were “phone reviews” to new appointment-taking IPs.  The Service hasn’t counted these in the stats as true visits, so neither have I.

 

  • How likely is it that a monitoring visit will result in some kind of negative outcome?

Graph (ii) (here(2)) lumps together all the negative outcomes arising from monitoring visits: further visits ordered; undertakings and confirmations; penalties, referrals for disciplinary consideration; plans for improvement; compliance/self-certification reviews requested; and licence withdrawals (3 in 2014).

It’s spiky, but you can see that, overall around 1 in 4 visits in 2014 ended up with some kind of action needed.

Above this line, ACCA and ICAEW reported the most negative outcomes.  Most of the ACCA’s negative outcomes related to the ordering of a further visit (20% of their visits).  The majority of ICAEW’s negative outcomes related to the request for a compliance review (16% of their visits).  Of course, ICAEW IPs are required to carry out compliance reviews every year in any event.  I understand that this category involves the ICAEW specifically asking to see and consider the following year’s compliance review and/or requiring that the review be carried out by an external provider, where weaknesses in the IP’s internal review system have been identified.

I find ICAS’ flat-line rather interesting: for two years now, they have not reported any negative outcome from monitoring visits.  The Service had scheduled a visit to ICAS in April this year, so I’ll be interested to see the results of that.

 

  • How likely is a targeted visit?

Let’s take a closer look at ACCA’s ordering of further visits (graph (iii) here(2)): is this a new behaviour?

The 2015 estimated figures are based on the outcomes reported for the 2014 visits, although of course some could already have occurred in 2014.

ACCA seems to be treading a path all its own: the other RPBs – and now even the Service – don’t seem to favour targeted visits.

 

Complaints

 

  •  Has the Complaints Gateway led to more complaints?

It’s hard to tell.  The Service’s first-year report on the Complaints Gateway said that, as it had received 941 complaints in its first 12 months – and by comparison, 748 and 578 complaints were made direct to the regulators in 2013 and 2012 respectively – “it may be that this increase in complaints reflects the improvement in accessibility and increased confidence in the simplification of the complaints process”.

However, did the pre-Gateway figures reflect all complaints received by each regulator or only those that made it through the front-line filter?  If it is the latter, then the Gateway comparison figure is 699, not 941, which means that fewer complaints were received via the Gateway than previously (or at least for 2013), as this graph (iv) (here(2)) demonstrates.

The stats for 2013 are a mixture: for half of the year, the regulators were receiving the complaints direct and for the second half of the year the Gateway was in operation.  It seems to me that the Service has changed it reporting methodology: for the 2013 report, the stats were the total complaints made per regulator, but in 2014 the report refers to the complaints referred to each regulator.

Therefore, I don’t think we can draw any conclusions, as we don’t know on what basis the regulators were reporting complaints before the Gateway.  We cannot even say with confidence that the number of complaints received in 2013/14 is significantly higher than in 2012 and earlier, as this graph suggests, because it may be that the regulators were filtering out more complaints than the Gateway is currently.

About all we can say is that marginally fewer complaints were referred from the Gateway for the second half of 2014 than for the first half.

 

  • What are the chances of an IP receiving a complaint?

Of course, complaints aren’t something that can be spread evenly across the IP population: some IPs work in a more contentious field, others in high profile work, which may attract more attention than others.  The Service’s report mentioned that the IPA is still dealing with 34 complaints from 2012/2013 that relate to the same IVA practice.

However, graph (v) (here(2)) may give you an idea of where you sit.

This illustrates that, if complaints were spread evenly, half of all IPs would receive one complaint each year – and this figure hasn’t changed a great deal over the past few years.

As I mentioned last year, I do wonder if this graph illustrates the deterrent value of RPB sanctions: given that the Service has no power to order disciplinary sanctions on the back of complaints, perhaps it is not surprising that, year after year, SoS-authorised IPs have clocked up the most complaints.  I believe that the IPA’s 2013 peak may have had something to do with the delayed IVA completion issue (as I understand that the IPA licenses the majority of IPs specialising in IVAs).  It’s good to see that this is on the way down.

I am also interested in the low number of complaints recorded by ICAS-licensed IPs: maybe this justifies their flat-lined actions on monitoring visits explained above: maybe their IPs are just more well-behaved!  Or does it reflect that individuals involved in Scottish insolvency procedures may have somewhere else to go with their complaints: the Accountant in Bankruptcy?  Although the AiB website refers complainants to the RPB (shouldn’t this be to the Gateway?), it also states that they can write to the AiB and it seems to me that the AiB’s statutory supervisory role could create a fuzzy line.

 

  • How likely is it that a complaint will result in a sanction?

Although at first glance, this graph (vi) (here(2)) appears to show that the RPBs “perform” similarly when it comes to deciding on sanctions, it does show that, on average, the IPA issues sanctions on almost twice as many complaints when compared with the average over the RPBs as a whole.  Also, it seems that IPA-licensed IPs are seven times more likely to be sanctioned on the back of a complaint than ICAEW-licensed IPs.  The ACCA figure seems odd: no sanctions at all were reported for 2014.

Of the 43 complaints sanctions reported in 2014, 35 were issued by the IPA: that’s 82% of all sanctions.  That’s a hefty proportion, considering that the IPA licenses only 34% of all appointment-taking IPs.  It is no wonder that, at last week’s IPA conference, David Kerr commented on the complaints sanction stats and stressed the need for the RPBs to be working, and disclosing, consistently on complaints-handling.

 

Overview

Finally, let’s look at the negative outcomes from monitoring visits and complaints sanctions together (graph (vii) here(2)).

Of course, this doesn’t reflect the severity of the outcomes: included here is anything from an unpublicised warning (when the RPB discloses them to the Service) to a licence withdrawal. And, despite what I said earlier about the timing of the Service’s visit to the ACCA, I am still tempted to suggest that perhaps the Service’s visits have pushed the regulators – the Insolvency Service’s monitoring team and ACCA – into action, as those two regulators have recorded significant jumps in activity over the past year.

The Service has a busy year planned: full monitoring visits to ICAEW, ICAS, CARB, LSS and SRA (although that may be scaled back given the decision for the SRA to pull out of IP-licensing), and a follow up visit to ACCA.  No visit planned to the IPA?  Perhaps that suggests that the Service is looking as closely at these stats as I am.


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ACCA and Insolvency Service monitoring: poles apart?

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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?


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The Insolvency Service’s labours for transparency produce fruits

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The Insolvency Service has been busy over the past months producing plenty of documents other than the consultations. Here, I review the following:

  • First newsletter;
  • Report on its visit to the SoS-IP monitoring unit;
  • Summary of its oversight function of the RPBs;
  • IVA Standing Committee minutes; and
  • Complaints Gateway report.

The Insolvency Service’s first newsletter

http://content.govdelivery.com/accounts/UKIS/bulletins/d469cc

Although this is a bit of a PR statement, a couple of crafty comments have been slipped in.

The newsletter explains that the Service’s “IP regulation function has been strengthened and we have raised the bar on our expectations of authorising bodies”. I started off sceptical but to be fair the Service’s summary of how it carries out its oversight function of the authorising bodies – https://www.gov.uk/government/publications/insolvency-practitioner-regulation-oversight-and-monitoring-of-authorising-bodies – does convey a more intensive Big Brother sense than the Principles for Monitoring alone had done previously.  This document puts more emphasis on their risk-based assessments, desk-top monitoring and themed reviews, as well as targeting topical areas of concern, which can only help to provide a better framework in which their physical monitoring visits to the RPBs can sit.

I commend the Service for establishing more intelligent regulatory processes, but two sentences of the newsletter stick in the throat: “We saw the impact that our changing expectations had in a few areas. Things deemed acceptable a few years ago were now being picked up as areas for improvement.” This is a reference to its report on the visit to its own people who monitor SoS-authorised IPs, the Insolvency Practitioner Services (“IPS”): https://www.gov.uk/government/publications/monitoring-activity-reports-of-insolvency-practitioner-authorising-bodies.  Having worked in the IPA’s regulatory department from 2005 to 2012, I would like to assure readers that many of the items identified in the Service’s report on IPS have been unacceptable for many years – at least to the IPA during my time and most probably to the other RPBs (I am as certain as I can be of that without having worked at the RPBs myself).

I am aghast at the Service’s apparent suggestion that the following recent discoveries at the IPS were acceptable a few years ago:

  • A 5-year visit cycle with insufficient risk assessment to justify a gap longer than 3 years;
  • Visits to new appointment-takers not carried out within 12 months and no evidence of risk assessment to justify this;
  • No evidence that one IP’s receipt of more than 1,000 complaints in the previous year (as disclosed in the pre-visit questionnaire) was raised during the visit, nor was it considered in any detail in the report;
  • No evidence of website checks (which the Service demanded of the RPBs many years ago);
  • “Little evidence that compliance with SIP16 is being considered”;
  • “No evidence that relevant ethical checklists and initial meeting notes from cases had been considered”; and
  • “Once a final report has been sent to the IP, there does not appear to be any process whereby the findings of the report are considered further by IPS”.

Still, that’s enough of the past. The Service has now thrown down the gauntlet.  I shall be pleased if they now prove they can parry and thrust with intelligence and effectiveness.

Worthy of note is that the newsletter explains that, in future, sanctions handed down to IPs by the RPBs will be published on the Service’s website (presumably more contemporaneously than within its annual reviews).

IVA Standing Committee Minutes 17 July 2014

https://www.gov.uk/government/publications/minutes-from-the-iva-standing-committee-july-2014

“Standardised Format”

The minutes report that the IPA will have a final version – of what? Presumably a statutory annual report template? – within “a couple of weeks” and that two Committee members will draft a Dear IP article (there’s a novelty!) to explain that use of the standard is not mandatory.

Income and Expenditure Assessments

The minutes recorded that Money Advice Service had been preparing for consultation a draft I&E statement – which seems to be an amalgam of the CFS and the StepChange budget with the plan that it will be used for all/a number of debt solutions. The consultation was opened on 16 October: https://www.moneyadviceservice.org.uk/en/static/standard-financial-statement-consultation

IVA Protocol Equity Clause

As a consequence of concerns raised by an adviser about the equity clause, DRF has agreed to “draft a response” – it seems this is only intended to go to the adviser who had written in, although it would seem to me to have wider interest – “to clarify the position, which is that a person will not be expected to go to a subprime lender and the importance of independent financial advice”. It is good to have that assurance, but what exactly does the IVA Protocol require debtors to do in relation to equity?  Does the Protocol clause need revising, I wonder.

Resistance to refunding dividends when set-off applied

I see the issue: a creditor receives dividends and then sets off mis-sold PPI compensation against their remaining debt. Consequently, it could be argued that the creditor has been overpaid a dividend and should return (some of) it.  The minutes state that “it is a complicated issue and different opinions prevail” (well, there’s a revelation!), although it has been raised with the FCA.

Variations

It seems that the Committee has only just cottoned on to the fact that the Protocol does not allow the supervisor to decide whether a variation meeting should be called, so they are to look at re-wording the standard terms to “give supervisor discretion as to whether variation is appropriate so when one is called it is genuine and in these instances the supervisor will be entitled to get paid”.

I’m sorry if I sound a little despairing at this, not least because of course the cynic may see this as yet another avenue for IPs to make some easy money! It was something that I’d heard about when I was at the IPA – that some IPs were struggling with IVA debtors who wanted, say, to offer a full and final settlement to the creditors that the IP was confident would be rejected by creditors, but under the Protocol terms it seemed that they had no choice but to pass the offer to creditors.  I’m just surprised that this issue has not yet been resolved.

Recent pension changes

The minutes simply state: “InsS to enquire with colleagues as to how it is planned to treat these in bankruptcy and feed back”. About time too!  Shortly after the April proposals had been first announced, I’d read articles questioning whether the government had thought about how any lump sum – which from next April could be the whole pension pot – would be treated in a bankruptcy.  Presumably, legislation will be drafted to protect this pot from a Trustee’s hands, but that depends on the drafter getting it right.  The lesson of Raithatha v Williamson comes to mind…

Well, I’m assuming that this is what the Committee minutes refer to, anyway.

Report on the First Year of the Complaints Gateway

https://www.gov.uk/government/publications/insolvency-practitioner-complaints-gateway-report-august-2014

Aha, so Dr Judge has been able to spin an increased number of complaints as evidence that the gateway “is meeting the aim of making the complaints process easier to understand and use”! I wonder if, had the number of complaints decreased, his message might have been that insolvency regulation had played a part in raising standards so that there were fewer causes for complaint.

The report mentions that the Service is “continuing dialogue” with the SRA and Law Society of Scotland to try to get them to adopt the gateway.

The Service still seems to be hung up about the effectiveness of the Insolvency Code of Ethics (as I’d mentioned in an earlier post, http://wp.me/p2FU2Z-6I) and have reported their “findings” to the JIC “to assist with its review into this area”.

The Service also seems to have got heavy with the RPBs about complaints on delayed IVA closures due to ongoing PPI refunds. The ICAEW and the IPA “have agreed to take forward all cases for investigation” – because, of course, some complaints are closed at assessment stage on the basis that the complaints reviewer has concluded that there is no case to answer (i.e. it is not that these complaints do not get considered at all) – “where the delay in closing the IVA exceeds six months from the debtor’s final payment”.  Does this mean that the general regulator view is that any delay under 6 months is acceptable?  Hopefully, this typical Service measure of setting unprincipled boundaries will not result in a formulaic approach to dealing with all complaints about delayed closure of IVAs.  And, although the other RPBs may license a smaller proportion of IVA-providing IPs, I wonder what their practices are…

The report also explains that the Service has persuaded the ICAEW to modify its approach a little in relation to complaints resolved by conciliation. Now, such a complaint will still be considered in the context of any regulatory breaches committed by the IP.  Years ago, the Service urged the RPBs to consider whether they could make greater use of financial compensation (or even simply requiring an IP to write an apology) in their complaints processes, but there was some resistance because it seemed that the key objective of the regulatory complaints process – to pick up IPs failing to meet standards – was at risk of getting lost: might some IPs be persuaded to agree a swift end to a complaint, if it meant that less attention would be paid to it?  To be fair, this has always been an IP’s option: he can always satisfy the complainant before they ever approach the regulator.  However, now settling a complaint after it has started on the Gateway path may not be the end of it for the IP, whichever RPB licenses him.

The Statistics

I think that the stats have been more than adequately covered by other commentaries. In any event, I found it difficult to draw any real conclusions from them in isolation, but they also don’t add much to the picture presented in the Insolvency Service’s 2013 annual review.  That’s not to say, however, that this report has no use; at the very least, it will serve as a reference point for the future.

Ok, the complaints number has increased, but it does seem that the delayed IVA closure due to PPI refunds is an exceptional issue at the moment. Given that the IPA licenses the majority of IPs who carry out IVAs, it is not surprising therefore that the IPA has the largest referred-complaint per IP figure: 0.63, compared to 0.54 over all the authorising bodies (although the SoS is barely a whisker behind at 0.62).  My personal expectation, however, is that the Insolvency Service’s being seen as being more involved in the complaints process via the Gateway alone may sustain slightly higher levels of complaints in the longer term, as perceived victims may not be so quick to assume that the RPB/IP relationship stacks the odds so heavily against them receiving a fair hearing.


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The Small Business, Enterprise and Employment Bill: Part 3 – Regulation

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In my final post on the Bill, I summarise the prospective changes to the IP regulatory landscape: by what standards will IPs be measured in the future? What will be the Insolvency Service’s role? And for how long will we continue with the multi-RPB model?

Regulatory Objectives

A key element of the Bill portrayed as the potential solution to several perceived problems is the introduction of regulatory objectives “as a framework against which regulatory activity can be measured and assessed”.

There has been a little refining of the objectives as originally proposed in the consultation document. They now appear (S126) as follows:

“‘Regulatory objectives’ means the objectives of:
(a) having a system of regulating persons acting as insolvency practitioners that
(i) secures fair treatment for persons affected by their acts and omissions,
(ii) reflects the regulatory principles, and
(iii) ensures consistent outcomes,
(b) encouraging an independent and competitive insolvency practitioner profession whose members:
(i) provide high quality services at a cost to the recipient which is fair and reasonable,
(ii) act transparently and with integrity, and
(iii) consider the interests of all creditors in any particular case,
(c) promoting the maximisation of the value of returns to creditors and promptness in making those returns, and
(d) protecting and promoting the public interest.”

Thus, the consultation’s suggested “value for money” objective has been replaced with reference to “high quality services at a cost to the recipient which is fair and reasonable”. However, “value for money” continues to appear large in the IA, which swings wildly from, on the one hand, conveying the sense that the introduction of a “value for money” regulatory objective will cause a sea change in regulation to, on the other hand, stating that, as RPBs say that “they already carry out an assessment of fees in monitoring visits”, they “do not anticipate this objective will add additional costs to the RPBs in terms of monitoring”.

Fees Complaints

The IA also states that “the objective makes it explicit that fee related complaints should be dealt with by the regulators”, but it states it is leaving the “how” entirely in the hands of the RPBs: “it will be for the RPBs, to create a system (whether within the existing complaints process or by combining resources to create a joint system) which adjudicates on fee issues”.

The IA sets a “high scenario” of 2,000 additional fee complaints (but with a best estimate of 300): that would be an average for each appointment-taker of three complaints every two years. However, despite this doom-saying, the IA factors in zero additional costs to the Service (in managing the Complaints Gateway) and to IPs. The IA states that the changes “should have minimal impact for individual IPs, particularly for those who already act in compliance with the existing legal and regulatory framework”. The Service does not seem to appreciate how the most compliant of IPs attracts complaints – it’s in the nature of the work – and how enormously time-consuming it can be to respond to RPB investigations, even when they end in “no case to answer”. I wonder how much work will be required to satisfy one’s RPB that the fees charged are a fair and reasonable exchange for the high quality services provided.

One consultation respondent estimated that the IP licence fee could increase by £950 pa, which prompted the IA drafter to write: “given the increased confidence and credibility to the industry which will result from a strengthened regulatory framework, is a proportionate cost for an industry which generates an estimated £1bn per annum”. In addition, the IA’s assessment of costs to the RPBs (for complaints-handling alone) shows a best estimate of £1,074 per IP, which increases to £7,184 per IP under the “high scenario”. Is this still considered a proportionate cost? It continues to sicken me that the Service seems to fail to understand the spectrum of environments within which IPs work. Yes, some do make a tidy living, but I know IPs for whom an extra £1,000 bill (let alone £7,000) would be the straw that breaks their back. For a Minister who seems so intent on “reducing a little the high bar on entry to the profession” (per her speech at the Insolvency Today conference) by introducing partial licences, which, allegedly, will encourage competition in the profession, she seems all too blind to the likely impact of burdening IPs with yet more costs; I think it will certainly threaten some sole practitioners’ survival in the industry. And for those IPs who can, inevitably the cost increase will be passed onto the insolvent estates – well done, Minister!

Will this “strengthened regulatory framework” really increase confidence in, and credibility of, the industry? Does the government feel that confidence will only increase once we see a few heads resting on platters? Well, public confidence had better improve, because the Bill will result in the Service’s hand hovering over the red button of the Single Regulator.

Partial Licences

The Small Biz Bill already makes obsolete the Deregulation Bill, which has yet even to complete its journey through the House of Lords, although principally only by adding to the Deregulation Bill’s requirements for RPBs – whether recognised for full or partial IP-licensing – by referring to the need to have rules and practices designed to ensure that the regulatory objectives are met.

Does this mean that the partial licensing debate over? The clause in the Deregulation Bill emerged intact from the House of Commons after a vote on a motion for its removal of 273 to 213. There has been some debate at the Bill’s second reading in the House of Lords, but it seems to me not nearly enough to turn the juggernaut. I find it quite striking how, on the one hand, there have been some very strong submissions against partial licensing primarily from R3 but also from the ICAEW* (which has stated that, through its own consultation process, it received “no indications of support at all” for partial licences), but on the other hand… Actually, who is fighting the “for” partial licensing corner? Why is it seen as such a great idea, where is the evidence that good people are being shut out of the market by the need to sit three exams (how many exams does it take to qualify as an accountant these days?), and has anyone with experience and knowledge of these things been arguing that partially licensed IPs will be just as skilful and competent as full licence-holders, only they will be cheaper?

* Responses on Clause 10 consultation, February 2014:
R3’s: http://goo.gl/vkqYvR
ICAEW’s: http://goo.gl/lhVNo8

Oversight Regulator’s Powers

The Bill introduces a range of powers, which will enable the oversight regulator (aka the Secretary of State, acting by the Insolvency Service) to influence an RPB’s actions – by means of directions, compliance orders, fines, reprimands, and ultimately the revocation of recognition – but also to leapfrog the RPB in its regulatory action against a licensed IP.

The Bill’s Explanatory Notes discloses the type of conditions that might prompt the Secretary of State to issue directions to an RPB: “if the RPB has failed to address the Insolvency Service’s concerns following a review of the way the RPB handles its complaints or a RPB’s failure to carry out a targeted monitoring visit of its IPs where the Insolvency Service has requested that it be done”. The Memorandum adds: “the Secretary of State will also be able to apply to the court to require an RPB to discipline an insolvency practitioner if disciplinary action appears to be in the public interest”.

When would the SoS apply to court directly to sanction an IP, rather than leave it to the IP’s RPB? The IA summary states: “where public confidence in the regime is undermined and could have serious consequences for the reputation of the profession. An example is where the activity undertaken impacts across all regulators and is so serious that action is required immediately, rather than wait for each regulator to investigate the case and come to potentially different findings”.

Personally, I find these moves worrying. In every Insolvency Service Annual Review of Insolvency Regulation, there is reported a clutch of complaints made to the Service about RPBs and, almost without exception, the Service’s investigations reveal nothing untoward. In addition, the Reviews disclose complaints made by the Service to the RPBs about individual IPs: these complaints appear to be processed by the RPBs adequately. Is this not the way things should be handled? It seems to me to be wholly inappropriate to side-step due process on the simple ground that public confidence appears to be undermined. Considering that the objective is to shore up public confidence in the existing regulatory regime, it seems to me that taking an issue out of the RPB’s hands is one sure way of destroying any confidence the public may have. If the Service were ever tempted to exercise such a power, it would seem to me that the nuclear option of a single regulator could become almost inevitable.

Single Regulator

What would prompt the SoS to designate a single regulator? The Bill’s Explanatory Notes state: “the power to move to a single regulator will only be used if the changes proposed by clauses 125 to 131 [i.e. including the regulatory objectives and the Service’s powers to sanction or direct the RPBs] do not succeed in improving confidence in the regulatory regime for insolvency practitioners”. The Memorandum also states: “the changes proposed by clauses 125 to 131 will be reviewed with a reasonable time of commencement. If there is still a lack of confidence in the insolvency practitioner regulatory regime, then the Secretary of State will consider whether to act to bring an end to the system of self-regulation by creating a single independent regulator which will apply consistent standards of regulation and will not be perceived to act in the interests of insolvency practitioners over creditors.”

I appreciate that often members of the public – and not a few IPs – express bemusement that the regulation of such a small industry should be shared amongst seven bodies and that there tends to be a natural scepticism towards the idea that a body funded (even in part) by IPs, some of whom also sit on regulatory committees, can be sufficiently independent to regulate its members satisfactorily (although I wonder how else anyone expects an insolvency regulator to be funded). However, whatever one’s criticisms are of the existing regulatory structure, I struggle to see how a single regulator would be certain to do a better job. But maybe it’s only the perception that’s important.


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IP Fees & Regulation Consultation: Have Turkeys Voted for Christmas?

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Faced with an apparent government vision of heavy-handed oversight over the RPBs and some peculiar restrictions on the time cost basis for IP fees, how have the RPBs and R3 responded? Have they resisted the pressure to offer some kind of compromise? Have they offered anything that might “solve the problems”? Here I have attempted to compare and contrast the responses of ACCA, ICAEW, ICAS, IPA and R3 to the key proposals of the recent consultation.

The government consultation page is at: https://www.gov.uk/government/consultations/insolvency-practitioner-regulation-and-fee-structure

The bodies’ responses are located at:

• ACCA: http://www.accaglobal.com/content/accaglobal/zw/en/technical-activities/technical-resources-search/2014/march/cdr1267.html
• ICAEW: http://www.icaew.com/en/technical/insolvency/insolvency-reps
• ICAS: http://icas.org.uk/Technical-Knowledge/Insolvency-Technical/Submissions/
• IPA: in the members’ area>public consultations>other consultations
• R3: https://www.r3.org.uk/media/documents/policy/consultation_subs/R3_response_-_Strengthening_the_regulatory_regime_and_fee_structure_for_IPs.pdf

In particular, I would recommend reading the R3 response in full, as there is not the space here to do it justice and it includes some valuable member survey results.

Regulatory Objectives

The government has proposed regulatory objectives for the statute-books, “framed” as follows:

1. Protecting and promoting the public interest

2. Having a system of regulating persons acting as IPs that:
(i) delivers fair treatment for persons affected by their actions and omissions,
(ii) reflects the regulatory principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed, and any other principle considered to represent best regulatory practice, and
(iii) delivers consistent outcomes

3. Encouraging an independent and competitive IP profession whose members:
(i) deliver quality services transparently and with integrity, and
(ii) consider the interests of all creditors in any particular case

4. Promoting the maximisation of the value of returns to creditors and also promptness in making those returns

5. Ensuring that the fees charged by IPs represent value for money

ACCA seemed alone in considering most of the above to be “uncontentious”, even going so far as to suggest what it felt would be a useful addition to them. However, none of the proposed objectives avoided the other bodies’ critical eyes. Many of the comments revolved around the thought that any such objectives will need to be supported by detailed guidance so that everyone was clear on the standards by which IPs and the RPBs are being measured.

Here are some other fruitier comments:

• Why stop at “having a system of regulating IPs” that delivers fairness etc.? Aren’t some of these objectives appropriate to the insolvency regime itself? (ICAEW, IPA)
• Shouldn’t the regulation system “deliver fair treatment” also to IPs? (ICAEW)
• Fixing IP fees on a prescribed scale (reference to another of the consultation’s proposals) would not “encourage a competitive IP profession”. (ICAEW)
• Statute already sets out how office holders should consider creditors’ interests (ICAEW, R3), although not uniformly in all cases (IPA). Setting it as an objective may raise false hopes of some expecting greater weight to be given to their interests than provided by statute. (ICAEW)
• Promoting the “promptness of returns” could threaten consideration of longer term gains, thus encouraging a culture of “quick kills” rather than thorough investigation and pursuit of claims. (IPA)
• “You should recognise that to perform a ‘value for money’ assessment in a case will require a detailed audit… which will be a very time consuming (and therefore expensive) process.” (ICAEW)
• Setting “value for money” as a regulatory objective simply shifts the responsibility for finding a solution onto the RPBs, rather than helping to overcome the difficulties in ascertaining what actually represents value for money. (IPA)
• The regulatory process cannot alter the facts that creditors will suffer losses, but enshrining objectives 4 and 5 risks over-inflating creditors’ expectations and thus may have a detrimental effect on public confidence. (IPA)

R3 kicked back more robustly on the concept as a whole: “the proposals… prompt us to suggest that now is the time to look at, in a fundamental way, the role of the Insolvency Service, as presently structured, funded, resourced and whether it is the most appropriate body to direct and oversee as important a part of the UK’s financial support service sector as the insolvency profession”.

Oversight Regulator’s Statutory Powers over the RPBs

The government proposes to introduce statutory powers to enable the Insolvency Service/Secretary of State to take a variety of actions against RPBs and, in certain cases, to make their own enquiries of, and apply to court to decide sanctions on, IPs directly. Unsurprisingly, the RPBs – and perhaps a little surprisingly, R3 – expressed concerns over some of the proposals as well as questioning whether the powers were truly necessary (again with the clear exception of ACCA, which had few specific comments on the proposals).

• “The ‘oversight regulator’ should take care to avoid ‘micro-managing’ RPBs and their disciplinary processes. Effectively running a ‘shadow’ regulatory system on top of the existing established processes would be confusing and damaging for the insolvency profession and those it serves.” (R3)
• “The increased powers of sanction by the oversight body seem to be little more than window dressing to address non-existent illegal actions… In our view, the system of regulation operates at its most effective when the oversight regulator and the RPBs work together, as demonstrated through the introduction of the complaints gateway.” (ICAEW)
• “It is worrying that the Secretary of State would wish to acquire the ability to control individual enquiries, which could undermine the fairness of the procedure.” (ICAEW)
• “The fundamental problem… is that the proposed legislation does not envisage there being any stage at which a proper disciplinary hearing will be held to allow the IP to deal with and refute the findings of the Insolvency Service investigation and it is envisaged that the Secretary of State, through the good offices of the Insolvency Service would be investigator, prosecutor and judge (determining both guilt and sanction).” (ICAEW)
• “We wonder whether this process could be susceptible to challenge on the basis of human rights legislation given that there appears to be no provision for a fair trial by an independent tribunal.” (ICAEW)
• “Who picks up the likely significant costs?” If these are to be passed on to the RPBs, then licence fees will increase significantly, with the likely consequences of increased costs on insolvent estates and IPs leaving the market. (ICAEW and R3)
• “There are several proposals… that would see IPs potentially punished twice for the same transgression. It is both inequitable and a position that few other professionals could find themselves in.” (R3) The IPA also stated that such a process “would introduce a degree of double jeopardy and be contrary to principles of natural justice”. Although apparently the Service has clarified, in a meeting with the IPA, that it is not intended to subject an IP to a second disciplinary process, the IPA has questioned how, and in what circumstances, would the Service conduct such enquiries independent of the IP’s licensing body.
• “The power for the Secretary of State to sanction an IP directly calls into question the point of the regulation of the profession being delegated to RPBs in the first place.” (R3)
• As regards the proposed power to issue a direction to an RPB in the context of a disciplinary matter: “it would be wholly inappropriate for the Insolvency Service to mandate that a particular decision be reached.” (ICAS)
• Will the Service be adequately resourced – financially and with skilled staff – to exercise these new powers, particularly in regard to the proposed investigations and prosecutions? (R3 and ICAS)

A Single Regulator?

It seems that there has been a slight convergence of opinions of R3 and the RPBs on this question. Setting aside ACCA, which “endorsed” the proposal, the regulatory and trade bodies now seem united in their objection to the proposed reserve power to enable the Service to designate a single regulator.

However, whereas R3 brought attention to the “regulation gap” that would result as a single regulator got up to speed, the RPBs had other reasons for their objections:

• Whatever could be achieved by the Insolvency Service overseeing a single regulator equally should be achievable with multiple RPBs. Effective oversight is the key. (ICAS and ICAEW)
• “There seems to be a failure to recognise that many IPs are already members of bodies which operate with the best regulatory models for professionals.” (ICAS)
• “Competition between regulators has driven down licensing costs and led to improvements in RPBs’ offerings to their members. There would be no such incentive to innovate, were there to be a single regulatory body.” (IPA)
• The government is also proposing to introduce a formal process to de-recognise an RPB if it fails to perform, but how would that work with a single regulator? We could hardly be left with no regulator! (IPA)
• Providing even a reserve power “could be seen to demonstrate on the part of the Insolvency Service a lack of commitment to the changes proposed for the regulatory regime and a lack of confidence in its part in the RPBs.” (ICAEW)

R3 suggested a third way: a “Single Regulatory Process”, which “would reduce significantly the inconsistencies that currently exist in the insolvency profession’s regulation” and “would also be a chance to take a fresh look at the profession’s regulatory processes and standards”.

Restriction of Use of Time Cost Basis

I wonder if the Service had any inkling of the floodgate they were prising open with the suggestion that the option of seeking fees on a time cost basis be limited to certain cases. Even ACCA is opposed to this one!

The core objections will not come as a surprise:

• If the primary issue is lack of creditor engagement, then the solution should lie in improving creditor engagement, starting with the Crown creditors. (ACCA, ICAS, ICAEW)
• “Some IPs may feel minded for their own commercial protection to factor in more work than might in the event be necessary, in which case fees could end up being over-estimated.” (ACCA; similar comments made by R3)
• In 2013, only 2% of all complaints related to fees, so perhaps creditors’ concern is not so acute as perceived by the government, and any action taken to change the existing regime must be proportionate. (ACCA, R3, ICAEW, ICAS)
• Plenty of criticisms of the OFT study: out of date, limited scope (which is now being extrapolated far beyond its remit), confusion between fees and costs, assumption that engaged creditors are the only constraint on fees, etc… (primarily R3 and ICAEW)
• IPs will avoid small and risky cases, as a fixed/percentage fee would not be economical. (R3, ACCA) [Although I have heard this many times, personally I don’t get it (unless people have in mind a prescribed rate): for a case with assets of £10,000 (net of non-IP costs), how does an IP’s recovery differ, if he is paid on a time cost basis, a fixed fee of £10,000, or a fee of 100% of the first £10,000 (net) realised?]
• This would burden the public purse, as uneconomic cases will remain with the OR. Some IPs also would leave the market, resulting in reduced competition and fewer options for debtors seeking help, which would seem contrary to the public interest. (R3, ICAEW)
• Fixed fees do not incentivise IPs to pursue tricky assets or to carry out non-profitable tasks. What does an IP do when he reaches the limit but still has work to do; is he expected to work for no pay? (ACCA, R3, ICAS, ICAEW, IPA)
• As recommended by the Cork Report, percentage-based fees were largely dropped in the 1980s, as they were viewed as unfair and inequitable to creditors. (ACCA, R3) “There is nothing inherently fair in a basis of charging where the results depend upon the amount and quality of realisable assets, rather than the work required.” (ICAEW) Arguably, time costs are the fairest fees mechanism (ICAEW), whereas fixed/percentage fees will invariably result in an element of cross-subsidisation of cases. (IPA)
• There is no evidence – or reason – to support the assumption that adopting fixed/percentage fees will reduce fee levels (IPA) or creditors’ returns (ICAEW).

But here are some of the more impassioned and novel comments:

• This specific proposal has no grounding in the Kempson review nor has there been any evidence-based research. “The Insolvency Service has disclosed the rationale behind this decision is solely ‘because two methods of remuneration are simpler than three’.” (R3)
• “R3 is not aware of anywhere else in the world where fee restrictions as outlined in the consultation are in operation. In effect, the Insolvency Service proposes to introduce an untested system of IP remuneration in the UK.” (R3)
• Secured creditors have the power to negotiate discounts from IPs, but why must that mean that unsecured creditors are ‘over-charged’? If a large customer (such as the government via its own procurement policy) sought to obtain discounts, that does not mean that other buyers of the goods and services are automatically being ‘over-charged’. (R3)
• Is a 9% differential in costs (the OFT study’s conclusion) really concerning? “The differential, for instance, between prices charged for consumer goods to wholesale or retail customers could be expected to be much higher (and still not exploitative of consumers).” (ICAEW)
• Restricting fees could result in outsourcing of parts of the job to unregulated entities, shifting the cost rather than reducing it and resulting in less transparency and control. (R3)
• “It is simplistic to think that changes introduced in the personal insolvency market can be imported into the corporate sector; this view demonstrates a complete lack of understanding of corporate insolvency, This market cannot be ‘commoditised’ in the same way.” (R3)
• If creditors have difficulty assessing the reasonableness of fees based on time costs, they will have the same, if not greater, difficulty judging fixed/percentage fees, something acknowledged by Professor Kempson. (R3)
• There is no reason to believe that restricting the use of the time cost basis in this manner will impact on creditor engagement or complaints about fees. (R3)
• RICS abolished fee scales for valuations after the Monopolies and Mergers Commission concluded that “they restricted competition and worked against consumers and were against the public interest”. (ICAEW)
• It is difficult to reconcile the government’s apparent determination to improve public confidence in the insolvency regime with the World Bank’s report that shows the UK currently as one of the most effective jurisdictions for resolving insolvency. (ICAEW)
• “If the aim of the Insolvency Service is to reduce IPs’ fees in aggregate to a break-even level, it seems unlikely that a high quality profession will be sustained.” (ICAEW)
• The Impact Assessment identifies the risk that the OR might be left with more small-value cases, but the Assessment’s suggestion “that the concerns will be ‘overcome’ through regulatory objectives of RPBs and monitoring is fanciful. The consequences would result from a fee regime imposed upon the profession by the government and RPBs would not be in a position to do anything about it.” (ICAEW)
• Professor Kempson recommended greater use of mixed bases for fees, but the government is proposing to abolish this. (IPA) [Mixed bases were only introduced in 2010!]
• The government wishes RPBs to engage more actively in monitoring and assessment of fees, but this will be more difficult in non-time cost cases. (IPA)
• The 2010 reforms and revised SIP9 are still fresh, but “the Insolvency Service appears already to have concluded that those reforms failed.” (ICAEW)
• Proposals to provide different fee bases for different case types, recovery prospects, and UK jurisdictions will do nothing to clarify an already-confusing picture for creditors. (ICAEW)

The bodies’ suggestions of alternative approaches are a mixed bag (some of which, personally, I find a bit scary! But hey, a bit of brain-storming is no bad thing.):

• Greater engagement by Crown creditors (pretty-much everyone’s idea).
• Reduce the constraints on creditors’ committees, e.g. smaller quorum. (ICAS)
• Encourage committee members, e.g. small payments for attending meetings. (ICAEW)
• Introduce a Scottish-style Reporter mechanism across the UK (the consultation stated that the Scottish system’s checks and balances appeared to work reasonably well). (ICAS)
• Require IPs “to justify to creditors and regulators their use of the hourly rate, by reference to prescribed criteria”. (ACCA)
• “More targeted support… to creditors to enable them to assess the reasonableness of the amounts being claimed.” (ACCA)
• “Improved management of creditor expectations, through creditor guides, fee estimates and estimated outcome statements.” (IPA)
• “Enhanced capital requirements and/or direct financial contribution by directors to the basic costs of insolvency processes.” (IPA) [Interesting idea, but isn’t there a risk of conflict with this..?]
• Fixing a minimum fee for those statutory elements of an insolvency administration that will generally not be of direct financial benefit to creditors.” (IPA, similar suggestion by R3)
• “Data collection and benchmarking of fee data.” (IPA) [And..?]
• “Guidance and/or compulsion of IPs to make greater use of mixed fee bases for different elements of the work involved within an insolvency administration. The onus could be put on the IP to justify why the basis sought is appropriate to the nature of assets, the complexity of the task and the value that it is estimated will result.” (IPA) [But does this follow, given some of the arguments against fixed/percentage fees..?]
• Better explanation by IPs up-front of the likelihood (or not) of dividends and of the work that will need to be carried out that will not generate direct financial benefits. (IPA)
• Adjusting the requisite voting majorities so that greater creditor participation is required. (IPA) [Why penalise IPs for creditors’ inactivity?]
• Encouraging cheaper ways of conducting “meetings”, e.g. by telephone, e-meetings, or resolutions by correspondence. (ICAEW)
• Drop the Red Tape Challenge proposal to remove the requirement to hold creditors’ meetings. (R3)
• More/better guides for creditors, similar to those that the Insolvency Service already provides for debtors facing bankruptcy. (ICAEW, R3)
• More transparency/information regarding the costs to insolvent estates by the Insolvency Service, as creditors/debtors often confuse these with IPs’ fees. (R3)
• Trade bodies should help members to understand insolvency – and how to avoid it or becoming a creditor in an insolvency – better. (ICAEW)
• All relevant Insolvency Service officials should work in an IP firm for a minimum of two weeks per year as ‘on the job/CPD training’ to plug the apparent knowledge gap, given the lack of understanding of the insolvency profession evidenced by the consultation proposals. (R3) [Ooh!]
• Greater use of cost-saving measures of 2010 Rules and more time to allow them to have effect. (R3)
• “IPs should also be required to report work with more transparency, e.g. break down time-use clearly into constituent parts such as ‘communicating with x number of creditors to establish a meeting’.” (R3) [Ooer! Can we try to keep it relatively simple and proportionate..?]
• “Introducing elements of a Code of Practice for IPs (based on the model in Australia) plus changes to SIP9 could be introduced to ensure that IPs’ records of time spent (and corresponding fees on a case) are transparent and accountable.” (R3) [In what ways is the current SIP9 deficient in this area..? R3 points to the Australian part of the MF Global case report as a good example; this report provides a fee estimate of $1 million for the first month – is R3 sure this is an appropriate model for typical (non-secured creditor) cases?] R3 suggests that in this way IPs would explain the work done “in more detail” and “reporting would be clearer”.

The most widely-made suggestion as regards fee-setting is the mandatory use of fee estimates (ACCA, IPA, ICAEW, R3), with some bodies suggesting express creditor approval for exceeding an estimate could be required (IPA, R3; ACCA: “perhaps”). I’m attracted to this idea as well, but, although I agree with the idea of seeking creditors’ approval for fees in excess of an estimate, I would hope that this could be done without necessarily positive creditor response; if creditors do not respond to an invitation to vote, then is it fair to penalise the IP? It could also impact on creditors’ returns, as silence may force the IP to take further measures, perhaps by court application, to achieve approval. It might also be more likely to encourage a poor habit of over-estimating fees in the first instance, so that IPs can avoid the hassle of seeking approval to more fees later. There are many issues with this suggestion – some will complain that it is well-nigh impossible to estimate fees with any degree of confidence at an early stage – but it has to be the lesser of several suggested evils, hasn’t it? In addition, isn’t it a standard and professional way of approaching fees? After all, don’t we usually seek fees estimates – with subsequent approval for uplifts – from many suppliers, from solicitors to garage mechanics?

Regulatory Intervention in Matters of Remuneration

The consultation also sought views on proposals to have the RPBs take a greater role in assessing and deciding on fees issues, via both enhanced monitoring and dealing with complaints about the quantum of fees. Most RPBs pointed out that IP fees are already considered to a significant extent; the ICAEW described it this way: “reviewers already look in detail at the insolvency practitioner’s time records. They will question the time recorded against specific tasks, where it doesn’t appear commensurate with the work evidenced on the case files; where it appears to have been carried out by a more experienced member of staff than we would consider appropriate; or where it appears excessive.”

As regards the suggestion that RPBs should do more than look at clear regulatory breaches:

• “To suggest that RPB bodies should step into the breach – even if one exists in relation to IP remuneration – will not address the issue without a sincere attempt by the UK Government to review the legislation. Regulators should not be asked to circumvent or overrule the law and to do so will inevitably expose the regulators to legal challenge.” (ICAS; ICAEW also highlighted the risks of Court challenge of RPBs’ judgments)
• “We are unclear on what basis an RPB could interject when the fee basis has been approved by a statutory process. This would be a usurpation of Court’s powers.” (IPA)
• “If 90% of creditors have approved as IPs fees, it does not appear reasonable to allow a minority financial interest to delay the administration of an estate.” (IPA)

Whilst the IPA is “opposed to routine regulatory involvement in fee assessment”, it seems more open to the idea that more could be done practically: it suggested that, if the idea of fee estimates were taken up, it could engage in “routine monitoring of practitioner performance” against these estimates. It also stated: “we can see no reason why, in a case of apparent excessive charging, the RPB could not direct the practitioner to repay such fees as exceed the original estimate provided or else direct the IP to have their fees assessed by a Court”, although the IPA does seem to be alone in this view.

It seems clear from the responses that there is much confusion amongst the bodies as to exactly what the government is proposing; simply dropping in a “value for money” regulatory objective and telling RPBs to get on with it will not work. The IPA remarked: “The regulatory challenges presented flow from the entirely subjective nature of establishing what value for money is and in whose opinion such value should be ascertained. The government has been singularly unable to define these concepts and appears now to expect the RPBs to be able to do so on their behalf… Will a full review of time spent and how this compares to the fixed or percentage fees charged be required? Will on-site visits to review practitioners’ files be expected?” The ICAEW also stated that, if the idea is for “RPBs to effectively conclude on each file reviewed that the IP’s costs represent value for money, we would expect there to be a significant impact on our monitoring costs; potentially doubling them.” However, the ICAEW seems to have been party to a meeting with the Consultation Policy Lead that has led them to conclude that all that is envisaged of RPBs as regards “enhanced monitoring” is pretty-much what they are already doing. One would hope that the Service could do better at communicating their desires to the bodies that they directly oversee!

In summary, I don’t think the turkeys have voted for Christmas. I think they have resisted well the pressure to seek a compromise, but have endeavoured to keep their eye focussed on what truly appears to be the issue – creditor engagement – and what practically might be done to improve the situation.


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A Closer Look at Six Years of Insolvency Regulation

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Have you ever wanted evidence-based answers to the following..?

• Which RPB issues the most – and which the least – sanctions?
• What are the chances that a monitoring visit by your authorising body will result in a sanction or a targeted visit?
• How frequent are monitoring visits and is there much difference between the authorising bodies?
• Do you receive more or less than the average number of complaints?
• Are there more complaints now than in recent years?

Of course, there are lies, damned lies, and statistics, but a review of the past six years of Insolvency Service reports on IP regulation provides food for thought.

The Insolvency Service’s reports can be found at: http://www.bis.gov.uk/insolvency/insolvency-profession/Regulation/review-of-IP-regulation-annual-regulation-reports and my observations follow. Please note that I have excluded from my graphs the three RPBs with the smallest number of IPs, although their results have been included in the results for all the authorising bodies combined. In addition, when I talk about IPs, I am looking only at appointment-taking IPs.

Regrettably, I haven’t worked out how to embed my graphs within the text, so they can be found here. Alternatively, if you click on full article, you will be able to read the text along with the graphs.

Monitoring Visits

How frequently can IPs expect to be monitored and does it differ much depending on their authorising body?

The Principles for Monitoring set out a standard of once every three years, although this can stretch to up to six yearly provided there are satisfactory risk assessment processes. The stated policy of most RPBs is to make 3-yearly visits to their IPs. But what is it in reality and how has it changed over time? Take a look at graph (i) here.

This graph shows that last year all RPBs fell short of visiting one third of their IPs. However, the Secretary of State fell disastrously short, visiting only 8% of their IPs last year. I appreciate that the Secretary of State expects to relinquish all authorisations as a consequence of the Deregulation Bill, but this gives me the impression that they have given up already. Personally, I would expect the oversight regulator to set a better example!

Generally-speaking, all the RPBs are pretty-much in the same range, although the recent downward trend in monitoring visits for all of them is interesting; perhaps it illustrates that last year the RPBs’ monitoring teams’ time was diverted elsewhere. Fortunately, the longer term trend is still on the up.

What outcomes can be expected? The Insolvency Service reports detail the various sanctions ranging from recommendations for improvements to licence withdrawals. I have amalgamated the figures for all these sanctions for graph (ii) here.

Hmm… I’m not sure that helps much. How about comparing the sanctions to the number of IPs (graph (iii) here).

That’s not a lot better. Oh well.

Firstly, I notice that the IPA has bucked the recent downward trend of sanctions issued by all other licensing bodies, although the longer term trend for the bodies combined is remarkably steady. I thought it was a bit misleading for the Service report to state that “the only sanction available to the SoS is to withdraw an authorisation”, as that certainly hadn’t been the case in previous years: as this shows, in fact the SoS gave out proportionately more sanctions (mostly plans for improvements) than any of the RPBs in 2009, 2010 and 2011. Although ACCA and ICAS haven’t conducted a large number of visits (30 and 25 respectively in 2013), it is still a little surprising to see that their sanctions, like the SoS’, have dropped to nil.

However, the above graphs don’t include targeted visits. These are shown on graph (iv) here.

Ahh, so this is where those bodies’ efforts seem to be targeted. Even so, the SoS’ activities seem quite singular: are they using targeted visits as a way of compensating for the absence of power to impose other sanctions?

Complaints

The Insolvency Service’s report includes a graph illustrating that the number of complaints received has increased by 45% over the past three years, with 33% of that increase occurring over the past year. My first thought was that perhaps the Insolvency Service’s Complaints Gateway is admitting more complaints into the process, but the report had mentioned that 22% had been turned away, which I thought demonstrated that the Service’s filtering process was working reasonably well.

Therefore, I decided to look at the longer term trend (note that the number of IPs has crept up pretty insignificantly over these six years: a minimum of 1,275 in 2008 and a maximum of 1,355 in 2014). Take a look at graph (v) here.

So the current level of complaints isn’t unprecedented, although why they should be so high at present (or indeed in 2008), I’m not sure. It also appears from this that the IPA has more than its fair share, although the number of IPA-licensed IPs has been growing also. Let’s look at the spread of complaints over the authorising bodies when compared with their share of IPs (graph (vi) here).

Interesting, don’t you think? SoS IPs have consistently recorded proportionately more complaints. Given that the SoS has no power to sanction as a consequence of complaints, I wonder if this illustrates the deterrent value of sanctions. Of further interest is that the proportion of complaints against IPA-licensed IP has caught up with the SoS’ rate this last year – strange…

Moving on to complaints outcomes: how many complaints have resulted in a sanction and have the RPBs “performed” differently? Have a look at graph (vii) here.

At first glance, I thought that this peak reflected the fact that fewer complaints had been received – maybe the actual number of sanctions has remained constant? – so I thought I would look at the actual numbers (graph (viii) here).

Hmm… no, it really does look like the number of sanctions increased in years when fewer complaints were lodged. However, I’m sceptical of this apparent link, as I would suggest that, in view of the time it takes to get a complaint through the system, it may well be the case that the 2012/13 drop in sanctions flowed from the 2010/11 reduction in complaints lodged. I shall be interested to see if the number of sanctions pick up again in 2014.

Going back to the previous graph, personally I am reassured by the knowledge that in 2013 the RPBs generally reported a similar percentage of sanctions… well, at least closer than they were in 2010 when they ranged from 2% (ICAEW) to 38% (ICAS).

The ICAEW’s record of complaints sanctions seems to have kept to a consistently low level. However, let’s see what happens when we combine all sanctions – those arising from complaints and monitoring visits, as well as the ordering of targeted visits (graph (ix) here).

Hmm… that evens out some of the variation. Even the SoS now falls within the range! Of course, this doesn’t attribute any weights to the variety of sanctions, but I think it helps answer those who allege that some authorising bodies are a “lighter touch” than others, although I guess the sceptic could counter that by saying that this illustrates that IPs are still more than twice as likely to receive a sanction from the IPA than from ICAS. Ho hum.

Overview

To round things off, here is a summary of all the sanctions handed out by all the authorising bodies over the years (graph (x) here).

This suggests to me that targeted visits seem to have gone out of fashion, despite monitoring visits generally giving rise to more sanctions than complaints… but, with the hike in complaints lodged last year, perhaps I should not speak too soon.