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Our response to the Insolvency Service's 'Future of insolvency regulation' consultation

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We welcome the Insolvency Service’s proposals for an enhanced model of regulation for Insolvency Practitioners (IP).

The creation of a single regulator in the Insolvency Service to replace the current system of Recognised Professional Bodies (RPBs) will help consolidate a fragmented system. We particularly welcome the proposal to extend regulation to firms offering insolvency services, and in particular the additional requirements on large IVA providers.

We think the proposed regulator will need to be split between corporate and personal functions to effectively pursue a consumer protection agenda. The insolvency landscape is broad, ranging from large corporate insolvencies of multi-national companies to personal insolvency solutions for highly indebted individuals like IVAs. The regulatory issues related to these areas are likely to be very different. As a consumer advocate we are concerned that a single regulator with a single set of regulatory objectives will lack the necessary focus to address consumer harm and secure positive consumer outcomes.

As well as the need for consumer specialisation, there are several areas where the proposals risk weakening the effectiveness of the new regulator. These include:

  • Independence and delegated functions – proposals to delegate functions to RPBs risk replicating the current system
  • Weak powers of investigation – the proposals do not appear to have fully considered the extent of investigatory functions that will be necessary for the regulator to pro-actively pursue an agenda of raising standards
  • Inadequate compensation – while proposals for a new system of consumer redress are welcome, the proposed level of compensation is currently set too low and not enough emphasis has been put on accessibility
  • Regulatory arbitrage and adequate standards – under the current regime in personal insolvency some providers are regulated by the FCA while others are not. The proposed new regime must not exacerbate the possibility of regulatory arbitrage lowering standards or creating different standards of consumer protection for different IVA providers
  • Cost implications for small providers – while funding arrangements are still being worked out, there needs to be consideration of costs on small providers. It’s vital that a ‘polluter pays’ principle is embedded in the future funding regime

You can download our full response here.