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 http://www.accountancyage.com/accountancyage/news/2222914/conflicted-role-weakens-agency 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 http://ssrn.com/abstract=1310791.
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