Proposed Changes to Insolvency Regulation
The Government has set out new proposals to reform and simplify regulation of the insolvency sector. A new consultation is inviting views on creating a single regulator for Insolvency Practitioners and extending regulation to firms that offer insolvency services.
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
- create a public register of all individuals and firms that offer insolvency services
- create a system of compensation and redress
It is believed that the proposed changes will help strengthen and modernise the regulatory regime which has been in place for over 30 years.
The reforms aim to ensure a robust and proportionate regulatory regime that enhances consistency, improves transparency and, importantly, will also regulate firms that offer insolvency services rather than just individual Insolvency Practitioners.
Regulation at firm level would see the insolvency sector brought into line with other sectors such as the legal profession.
The Insolvency Service is currently responsible for oversight of regulation of the Recognised Professional Bodies (‘RBPs), which are responsible for regulation of individual Insolvency Practitioners (‘IPs’). However, they found that the current framework is disproportionately complex, with 4 membership bodies and government all involved in regulating fewer than 1,600 individuals.
The Government suggests that this approach has led to weaknesses in the regulatory system as the market has evolved over recent decades. As well as a lack of regulation of firms undertaking insolvency work, the current system also lacks transparency and has inconsistencies, with different bodies making information available in different formats.
The Government is also proposing a public register that will clearly show all individuals and firms that are authorised to provide insolvency services, together with whether that individual or firm has previously been sanctioned by the regulator.
There is also a proposal to introduce a new mechanism allowing for the payment of compensation if it is found an IP or firm offering insolvency services has made a mistake and one of the parties involved have been adversely affected.
The consultation will run until midnight on 24th March 2022 and we will be monitoring the results and any changes which are subsequently enacted.
You can respond to the consultation and register your views here.
If you have any queries about this article, please contact Allison Thompson on 0191 2263719.