The Insolvency Service - Business and Enterprise Committee Contents

5  Regulation

48. There are approximately 1,680 licensed insolvency practitioners. A licence can either be obtained from the Insolvency Service or from one of seven Recognised Public Bodies (RPBs). It is by far more common for private sector insolvency practitioners to be licensed by one of the RPBs than through the Service. Each of those RPBs are in turn regulated by the Service, which has led to concerns that it suffers from a conflict of interest due to being both a regulator and licensing body.[73] This was denied by Mr Speed on the basis that the Service does not actively promote its power to license insolvency practitioners and, in practice, only does so in relation to a small number of individuals, currently totalling 92:

we do not compete with the regulated professional bodies. We do not go out and market our regulation as something we would like people to sign up to. It happens to be there in statute, and if somebody approaches the Service to be directly licensed by the Secretary of State then that is a service we are statutorily required to deliver. I do not think it gets in the way at all of the work that we do in overseeing the seven Recognised Professional Bodies who oversee the vast majority of insolvency practitioners.[74]

49. The Service does, however, accept criticisms that it fails adequately to explain the work that it carries out as regulator. For instance, the Insolvency Practitioners' Association stated: "The Service should take a more outward-looking role in assuring the integrity and robustness of the regulatory framework."[75] Mr Speed stated that more needs to be done:

Let me take that one on the chin… We are now looking to see how we can make a step-change in the level of disclosure that we might put, for example, in our annual report and accounts, and I think there are three parts to this: firstly, about what the regulatory bodies themselves have done during each year in relation to their population of insolvency practitioners; secondly, about what we have done as a direct licensor in relation to it - our population of about 92 IPs; and, thirdly, about the way in which the Service has sat at the top of the pyramid and overseen the work of the regulator bodies.[76]

50. More generally, some witnesses raised the unusual contrast between the relatively large number of licensing bodies, eight in total, against the comparatively small number of insolvency practitioners. Mr Speed explained that this was due to the way in which the regulation of the insolvency profession has evolved.[77] He argued that the real issue was whether the regulation was consistent, which he believed it to be.[78] This was supported by the Insolvency Practitioners Association who highlighted the Memorandum of Understanding entered between the Service and each of the RPBs, the bringing together of the various licensing bodies through the Joint Insolvency Committee which issues practice statements applying to all members of the profession, the process for inspecting and reporting upon the licensing bodies, and a 2006 study that revealed the licensing bodies were each exercising their disciplinary powers in a broadly comparable way.[79]

51. We are, however, concerned that the Insolvency Service has a narrower range of powers with which to discipline its licensed members than are available to other RPBs. The Insolvency Practitioners Association stated: "If The Service is to continue to licence insolvency practitioners, then it should have the full range of sanctions to deal with transgressions and misconduct."[80] Mr Speed accepted that in an ideal world this would be the case, although he stated that the Service manages to take action where necessary by increasing inspection of the individual concerned, agreeing an action plan and where necessary restricting or revoking their license.[81]

52. A more recent report commissioned by the Insolvency Practices Council also considered issues surrounding complaints and professional discipline. It concluded that, in the prevailing economic climate, the insolvency profession and its regulators should consider the case for introducing an insolvency ombudsman responsible for handling all complaints against insolvency practitioners.[82] The report considered the case for this proposal, including the usefulness of a full, independent review and the prospect that this would increase public confidence. It also considered the case against, including the expense and prospect for vexatious complaints. In its most recent annual report, the Insolvency Practices Council called for personal debtors to be able to take their complaints to the Financial Ombudsman service and for there to be a complaints procedure dealing with complaints falling short of the threshold for disciplinary action, including the possibility of an appeal to an independent external reviewer, with power to award appropriate redress. The issue was raised too late for us to examine it properly and come to a conclusion but we recognise its importance.

53. The Insolvency Service must increase the transparency of its regulatory activities as a matter of priority. More generally, the Department for Business, Enterprise and Regulatory Reform should take the earliest available opportunity to provide the Service with the same range of powers to discipline its licensed members as are available to the other Recognised Professional Bodies. We recommend that the Department and the Insolvency Service should undertake a cost benefit analysis of the case for establishing an insolvency ombudsman.

73   Conflicted role weakens Insolvency Service, Accountancy Age, 31 July 2008, available at Back

74   Q89; 92 Back

75   Ev 42, para 6.7 (Insolvency Practitioners Association) Back

76   Q91 Back

77   Q94 Back

78   Q94 Back

79   Ev 41, para 6.3 (Insolvency Practitioners Association) Back

80   Ev 41, para 6.6 (Insolvency Practitioners Association) Back

81   Q92; 94 (Mr Speed)  Back

82   Complaints Handling by The Regulators of Insolvency Practitioners: A Comparative Study, Professors Seneviratne and Walters, Nottingham Trent University, January 2009, available at  Back

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