Ministers have said the insolvency sector will come under closer scrutiny than ever through a shake-up of the sector. But the Insolvency Service has put plans to create a single regulator for the industry on the back-burner, instead relying on the existing professional bodies to oversee firms.
The government yesterday heralded its reform programme as an ‘overhaul of insolvency regulation’ to modernise the sector, increase transparency and bolster consumer confidence.
Currently, only individual practitioners (IPs) are subject to regulation, whereas firms are not subject to the same formal level of accountability.
But with the insolvency sector evolving to include more complex firms and volume-based business models, ministers have decided the gap in regulatory coverage needs to be filled.
This view was supported by the majority of respondents to a government consultation on proposals to increase regulation and improve transparency.
The four recognised professional bodies (RPBs) that currently regulate individual IPs will continue to have oversight of the profession. The proposed model for the regulation of firms offering insolvency services requires changes to primary legislation to be fully implemented. This will be implemented as soon as parliamentary time allows, the announcement said.
The government proposes that the need and options for introducing a single regulator will remain under review.
Kevin Hollinrake, minister for enterprise, markets and small business, said the reforms will create ‘transformational improvements, modernise the regime and crucially, increase public confidence’.
He added: ‘Our insolvency sector is highly-respected around the world, with the vast majority of Insolvency Practitioners doing a good job, making a valued contribution to our economy, and supporting those in financial difficulty. But there continue to be instances of poor conduct that have a direct impact on those closely involved. When that happens, it tarnishes the reputation of the whole profession, and undermines confidence.’
A further consultation will be held to decide on a compensation and redress scheme for people affected by insolvency professionals’ mistakes or misconduct. The bond scheme to cover losses in the event of fraud or dishonesty – the equivalent of the solicitors compensation fund – will be extended to better protect creditors.
