Friday, 24 April 2009

A superabundance of insolvency regulators? - views from the outside world which make uncomfortable reading - breaking the taboo

There are two taboos in the area of insolvency law and practice; the remuneration issue, and what I will call here, the RPB issue. This second issue is the subject matter of this blog post. There are over 100,000 solicitors in England and Wales. They are all regulated by one regulator, namely, the Solicitors' Regulatory Authority. There were approximately 12,136 barristers in England and Wales as of December 2008. They were (and still are) all regulated by one body, namely, the General Council of the Bar. There are 231,297 medical doctors in the UK who are all regulated by one body, namely, the General Medical Council. I have been unable to ascertain the number of dentists and other dental professionals who are regulated by the General Dental Council.

It is a problematic exercise to try and quantify the total number of accountants in England and Wales (and even more so the number in the UK) because there are a rather large number of regulators. Accountants are regulated, prima facie, by the Association of Chartered Certified Accountants (ACCA) who have 131,500 members or the Institute of Chartered Accountants in England and Wales (ICAEW) who have (over) 132,000 members, or Institute of Chartered Accountants in Scotland (ICAS), or the Chartered Institute of Public Finance & Accountancy (CIFPA), or the British Accounting Association (BBA) (mostly teachers & researchers), or the Chartered Institute of Management Accountants (CIMA), and finally, the Association of Accounting Technicians (AAT). Between them these eight or so regulatory bodies monitor the activities of over 263,500 accountants in England, Wales, Scotland and Ireland.

By comparison to the above disparate group of professionals there were 1,592 Insolvency Practitioners (IPs) in 2007 according to a written answer in Hansard. For the purposes of argument we will assume that this figure remains roughly the same at this point in time. The amount of RPBs makes the quantification calculation somewhat of a truncated exercise to which I do not currently have the answer. IPs are regulated by eight (8) Recognised Professional Bodies (RPBs). The RPBs are:
Professor Prem Sikka, of the University of Essex, has painted a rather negative picture of the state of insolvency regulation in The Guardian newspaper. This is not his first critique of the area (see: one and two). Amongst other things he critiques the amount of RPBs for such a small number of practitioners. We could call this the 'RPB question.' In his Guardian newspaper piece he focuses on the amount of regulators involved in the insolvency industry. He notes:
"The bad news for millions is a boon for corporate undertakers, also known as insolvency practitioners, who are poorly regulated, lack effective public accountability and indulge in predatory practices.... all UK personal and business insolvencies must be handled by just 1,600 insolvency practitioners belonging to law and accountancy trade associations. They are regulated by no fewer than seven [sic] self-interested groups rather than by any independent regulator, leaving plenty of scope for duplication, waste and buck-passing...The insolvency industry is out of control. It lacks independent regulation, independent complaints investigation procedures and an independent ombudsman to adjudicate on disputes between practitioners and other stakeholders. The practitioners owe a duty of care to all stakeholders and must be forced to make public all relevant information in their possession. One hopes that with the deepening economic gloom parliamentary committees will examine the role of this industry in the loss of jobs, homes and savings."
Some of the online responses to Professor Sikka's comments will make uncomfortable reading for members of the insolvency profession and the Insolvency Service. Here are a few selected comments:
"It would seem better if the Government, as they'll probably have to, determined that Insolvency Practices should be independent and suggested a single Regulator. The Solicitors Regulation Authority might be a model for such an entity."

"But it seems to me that it is so cosy with those who hold the power to do anything that nothing is going to change. It's an 'old boy's club', each party enriching themselves and the others at the expense of those (the rest of us) who are on the outside."

"In many ways it is very corrupt. It is certainly not very edifying to see. However, unless there is a revolution, I can't see anything changing. Alas."

This is a difficult area, indeed, it is almost as vexed as the remuneration question. These various outside views of how insolvency law and practice is regulated, and how it is in fact perceived, certainly give rise to some very tough questions. It would be interesting to hear the view of the Insolvency Practices Council (IPC) in this regard, especially in light of the recent research that has been undertaken on their behalf by Professor Adrian Walters in relation to IP complaints and discipline. Questions could include: (1) is there duplication and repetition of effort in relation to discipline and complaints?, or even worse, (2) is there disparate treatment of miscreant IPs amongst the different RPBs?  

Professor David Graham QC has also critiqued the current regulatory system. He has observed:
"The primary stakeholders in the system are the creditors, the debtor (corporate or individual) and the public interest. The needs of this group are merely served by such entities as the Insolvency Service, the ever-increasing body of practitioners (licensed or otherwise) and the vast army of those who feed off the system. The unacceptable consequence is that rights of the primary stakeholders are all to often sacrificed to the interests of those whose duty it is to serve the real beneficiaries. This fundamental principle needs to be reinvigorated...With its confusing array of regulatory and other similar bodies the insolvency industry should be urgently persuaded to consider such a voluntary approach to complaints handling before Parliament is compelled to intervene.The proliferation of professional or quasi-professional insolvency bodies each with its own fiefdom is clearly a matter of growing public concern. This is a problem faced from time to time by most other expanding professions but can be acute if there are an appreciable manner of unqualified operators on the margins. This was also a major concern of Cork. Anecdotal and other evidence strongly suggest that today the problem may be, if anything, far more serious due to the activities of those who prey on the over-indebted consumer."
In response to the RPB question or the "one regulator call" Mr. Pat McFadden MP, Minister of State at BERRobserved on the 16th of January 2008:
"The Secretary of State has no plans to bring forward proposals to provide for a single insolvency regulator. The Insolvency Regulation Working Party considered this matter and in their report, published in 1999, emphasised that insolvency practice had never been the prerogative of any one profession. The Working Party also considered that the operational role allocated to the professional bodies in the regulation of insolvency practitioners had bought significant value in creating a regulatory infrastructure and in extending the scope of regulation."
For an earlier Parliamentary exposition of the place of RPBs see the comments of Mr Nigel Griffiths MP who on the 15th July 1997 observed:

Recognition is on the basis that those bodies have rules to ensure that practitioners have appropriate educational qualifications and experience, and also that they remain fit and proper. The bodies are responsible for the regulation of the practitioners they authorise. The Secretary of State has a residual licensing function, and about 1,830 practitioners are currently authorised.

The regulatory process has developed considerably since its introduction 10 years ago...but there is no room for complacency. The professional bodies are well aware that the insolvency profession is the subject of continued scrutiny, and my Department will maintain the pressure for the highest standards both within the professional bodies and among the practitioners they regulate.

It is my view that, if self-regulation works, can be seen to work and works in the public interest, it is fine. Clearly, there are other ways of doing things. In the United States of America and in Canada, for example, the Government play a more direct and greater role in the regulation of insolvency practice, but such systems have their flaws. At the same time, self-regulation is a privilege, and if it is to continue it must be earned."

When you think about the RPB question closely (I am not suggesting Professor Sikka has not given the area anything other than deep consideration) is there actually a serious issue to discuss with the so-called superabundance of RPBs? When you examine the amount of IPs regulated by the individual eight RPBs you might have cause for concern, especially if you had to pay for the yearly compliance function that eight visits would necessitate, but other than this compliance cost point what is the principal objection to the so called 'proliferation'? 

One could argue that we see too much of the wrong type of regulation – the recent failure of the banks is a good example of regulators not really understanding what is going on.  Does this occur in the insolvency field? The wrong type of regulation is not of course the same as too many regulators. In a future blog entry I will examine this point and others. Essentially, I will examine the case for and against having eight separate RPBs regulating such a small number of practitioners. In essence, I will try to rebut both Professor Sikka and Professor Graham and their various contentions. 

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