An overhaul of the way insolvency practice is regulated in Britain has been proposed by the UK government.
Currently, there is no firm-wide regulation of insolvency practice. Instead, four professional membership bodies share responsibility for the regulation of individual practitioners with The Insolvency Service serving as the oversight regulator.
The proposals are intended to reform and simplify regulation of the insolvency sector and key changes set out in the consultation include:
- establishing a single independent regulator to sit within the Insolvency Service, replacing the current four Recognised Professional Bodies
- extending regulation to firms that offer insolvency services, as the current regime only covers individual Insolvency Practitioners
- creating a public register of all individuals and firms that offer insolvency services
- creating a system of compensation and redress
The proposals are open to consultation until 25 March 2022.
UK business minister Lord Callanan said: “The way insolvency practitioners are regulated (as individuals) has not kept pace with changes in the way the insolvency market operates, with an increase in practitioners now working as an employee of a firm employing several insolvency practitioners, with little or no control over the firm’s governance. The current regime’s inability to tackle wrongdoing at firm level has created the potential for conflict between the interests of the firm and the statutory duties of the insolvency practitioner.”
“The current regime is also disproportionately complex, with four membership bodies and government all involved in regulating fewer than 1,600 individuals. This approach has created inherent weaknesses in the regulatory system, mitigating against common standards, consistency and effective disciplinary outcomes.”
The government said that the proposed reforms would require new legislation to be introduced and it has promised to further consult with the industry on any new regulatory model it intends to implement.
Our thoughts
Jason Elliott, Partner and Head of Business Recovery at Cowgills welcomes the plans for reform but warns about the potential implications of centralising regulatory powers within the Insolvency Service.
An overhaul of the regulations to bring them into the 21st century and in line with other sectors such as audit and the legal professions is a good thing but the proposal to create a single regulatory body within the Insolvency Service, replacing the four current independent regulatory bodies, is concerning.
The Insolvency Service already works with government to set legislation in this area. It also takes formal appointments via the Official Receiver, effectively competing with the private sector for work.
By implementing proposals which will allow the Insolvency Service to regulate the rest of the industry, whilst not itself being subject to the same level of scrutiny, poses questions as to whether or not this will place too much power within the Insolvency Service.
The full consultation for reforming insolvency regulation can be found here.
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If you have any queries on these insolvency regulation changes, or need advice on a business insolvency, get in touch with our expert team today.
Disclaimer
The information was correct at time of publishing but may now be out of date.
