Shelved plans for independent insolvency regulator disappointing – industry reaction

The charity behind National Debtline has responded to the Government’s decision to row back on plans to bring insolvency firms under independent regulation, calling the decision disappointing.

The Money Advice Trust, which runs the free National Debtline and Business Debtline advice services, warns that the changes do not go far enough to protect people in financial difficulty from harmful practices.

Highlighting the impact poor practice in the personal insolvency market has for people experiencing problem debt, the charity is now calling for rules to ensure people receive FCA-regulated debt advice before being able to enter an individual voluntary agreement (IVA).

David Cheadle, acting Chief Executive at the Money Advice Trust, the charity that runs National Debtline said “While today’s decision to regulate insolvency firms, rather than individual Insolvency Practitioners, is a small welcome step, it is disappointing to see the Government roll back its commitment to do this under a single, independent regulator.”

“Our advisers at National Debtline regularly hear from callers dealing with the fallout of IVAs that are in many cases not right for their circumstances, and which can set their route out of debt back by many years.”

“More needs to be done to tackle harmful practices in the insolvency market, including rules to ensure people receive debt advice from an FCA regulated provider before an IVA can be put in place. With millions of households already struggling due to the impact of high costs, ensuring people are able to access safe routes out of debt is more important than ever. ”

StepChange Director of External Affairs and Operating Subsidiaries Richard Lane said “Proposals to regulate all firms offering insolvency services – particularly the volume IVA providers that dominate the market – is welcome and has the potential to tighten up the system and reduce the risk of harm to financially vulnerable individuals. The rules around how these firms are regulated will need to add significant power to a regulatory structure that has not been able to get on top of problems in the IVA sector up to now.”

“The sector needs more than just regulation of firms, which is why it’s welcome to see government’s intention to take control of standards and standard setting in the IVA market, which we hope will quickly lead to better outcomes for consumers. The government’s intention to introduce a better system for redress is something we have long called for, and we urge the Insolvency Service to move this forward as a priority.”

“However, without a single regulator we may continue to see fractured oversight of the IVA sector. Recognised Professional Bodies need to be clear how their approach will change to address the concerns raised in this consultation.”

Christina Fitzgerald, Immediate Past President of R3, the UK’s insolvency and restructuring trade body, and a Director at Isadore Goldman said “Today’s announcement is welcomed and we are pleased that the Government has listened to the profession’s concerns about the creation of a single Government regulator. The proposals outlined seek to evolve our framework in a way which we hope will preserve the best of our current approach, while taking into account the changes in the demands on the framework and the profession over the last 40 years.”

“We are also pleased that the Minster has recognised the quality of the work done by members of the profession, who every year rescue thousands of businesses, save tens of thousands of jobs and help return billions of pounds to the economy.”

“Turning to the details of the announcement, the introduction of firm regulation should improve professional standards and has been supported by the wider profession. The decision to reform the bonding regime is also welcomed as this has been needed for a number of years. However, we urgently need more detail on how these changes will work in practice, and hope their introduction won’t affect the profession’s ability to support financially distressed businesses and individuals.”

“It is important that any regulatory changes do not impose onerous burdens on the profession and such regulatory changes should be introduced in such a way so that they support diversity, choice and a breadth of provision within the market.”

“We understand the rationale behind the compensation scheme, but have significant concerns it could lead to a wave of unsubstantiated claims and the creation of a PPI-style claims management industry, which could place an unwanted and potentially unmanageable burden on the smaller practices within the profession, have consequences for the profession’s ability to deliver for clients and creditors, and potentially undermine the UK’s national and international reputation for having an effective insolvency framework and profession.”

“We look forward to seeing the full details of the proposed changes and working with the Government to ensure that the new regime helps further improve public confidence in the profession and the work it does every year to rescue businesses, save jobs, return money to the economy, investigate director misconduct and help people return to a more secure financial place.”

Duncan Wiggetts, ICAEW Chief Officer, Professional Standards said “We are pleased that the Insolvency Service has listened to feedback and is making these much-needed reforms to modernise the regulatory framework.””

“Regulating firms as well as individual Insolvency Practitioners (IPs) will strengthen our powers as a regulator. We have long argued that this has been the biggest problem with the existing regime, not the identity of the enforcing body, so are also pleased that the four recognised professional bodies (RPB) will continue to have oversight of the profession.”

“We were concerned that substantial changes to the landscape at this time could create a regulatory vacuum, so maintaining the existing RPB model will bring the best outcomes for businesses, the insolvency and restructuring profession, and the public.

“We look forward to working closely with the Insolvency Service and our fellow RPBs to take forward these reforms and strengthen the framework.”

Linton Bloomberg, Partner at Reed Smith said “Our insolvency framework is considered one of the best in the world and anything that protects its reputation should be welcomed. As a profession, whilst the objective is to always find solutions where creditors, employees and stakeholders are fully protected, that isn’t always possible. We then look for the best ‘soft-landing’ possible. Unfortunately, in an insolvency, some parties won’t be paid everything they’re owed and may, understandably, seek to blame someone for any decisions that may have led to this. The insolvency practitioner is an obvious target.”

“Insolvency practitioners are officers of the Court and have clear objectives set out in the insolvency legislation. If they breach these, creditors may challenge their conduct in Court. This is expensive though, and relatively rare. The role of the regulators is therefore crucially important as any misconduct undermines confidence in the profession as a whole. Anything that ensures the regulators are fair and efficient and appropriately empowered is a good thing for the profession.”

“It’s important not to overreact to individual cases where standards have fallen short of expectations by introducing new processes or changes unless they add real benefit and protection. The profession saw this with the introduction of the checks and measures regarding pre-packs which didn’t have the desired effect. The government is therefore right to keep a watching brief and continue monitoring the situation before making any further decisions on introducing a single regulator.”