Corporate report

Report on the Institute of Chartered Accountants in England & Wales complaints handling process

Updated 16 July 2020

Executive Summary

The Insolvency Service has overall responsibility on behalf of the Secretary of State for ensuring that the activities of the regulatory bodies that authorise and licence insolvency practitioners are in line with regulatory objectives set out in part 13 Insolvency Act 1986. These objectives include a system of regulating insolvency practitioners which promote fair and consistent outcomes, maximises returns to creditors and protects and promotes the public interest. As part of our oversight activities, the Insolvency Service undertakes monitoring visits to the Recognised Professional Bodies (RPBs) using a risk based approach to assess their extent and frequency.

This report presents the findings of a monitoring visit, which took place in May 2019 to examine progress in relation to recommendations made by the Insolvency Service to the Institute of Chartered Accountants in England & Wales (ICAEW) during 2018. This report includes information provided by the ICAEW prior to the visits, findings in relation to specific cases and recommendations.

1. The ICAEW – Overview of Regulation

1.1 The ICAEW is a Recognised Professional Body (RPB) as defined under s391 Insolvency Act 1986which authorises and regulates insolvency practitioners. At 1 January 2019, the ICAEW licensed 794 practitioners of which 594 were authorised to take insolvency appointments.

1.2 Due to concerns about delays in ICAEW's progression of complaints about its insolvency practitioners and the associated outcomes, the Insolvency Service conducted a targeted monitoring visit in September 2018 to specifically review complaints handling.

1.3 That visit identified a number of areas of concern about the ICAEW's complaints handling processes, and that ICAEW's complaint-handling resources had been seriously impacted during the preceding period by the peak period of work in the largest insolvency investigation ever undertaken by ICAEW, which had been exacerbated by the loss of an experienced case manager during that period. The visit led to Insolvency Service recommendations to improve certain matters. ICAEW responded positively and constructively to the findings and it was agreed that a follow-up visit would take place in 2019 to assess whether necessary improvements had been made. The recommendations from the September visit together with details of progress against them are set out in Annex 1.

1.4 The Insolvency Service carried out an onsite monitoring visit to the ICAEW between 7 and 8 May 2019.

1.5 In advance of the visit, we obtained the following information from the ICAEW:

• Minutes of all Investigation Committee (IC) meetings since October 2018.
• Details of all complaints open for more than 12 months as at the quarter ended March 2019.
• All complaints closed since 1 October 2018.
• All open complaints received since 1 April 2018.
• Details of all complaints where there has been a disciplinary outcome since October 2018.

1.6 The ICAEW was also asked to provide updates on procedural changes it had agreed to make following September's visit.

2. Overall Findings

2.1 Overall, the Insolvency Service found that the ICAEW had made improvements against all of the areas identified in September 2018. The progression of complaints has improved, and the number of complaints remaining open for longer than 12 months has reduced. Whilst there were still some examples of cases that had not been progressed in a timely manner we were pleased to note the general overall improvement.

2.2 The quality of information provided to complainants when complaints are closed has improved. There was evidence that the ICAEW is identifying additional matters of complaint for investigation as a matter of course. This is a positive step, although we did note some inconsistencies across the team when determining which additional matters should be subject to an investigation relating to fees in two cases.

2.3 The quality of information provided from the IC when reaching decisions has improved. There remained a small number of cases where additional clarity where there was a departure from the Common Sanctions Guidance (CSG) would have been appropriate.

2.4 The ICAEW is now promptly notifying the Insolvency Service of all disciplinary outcomes.

Progress against recommendations

Below is a summary of the recommendations which were agreed at the last visit in 2018 and the ICAEW's progress against them.

Initial Recommendation

ICAEW should provide the Insolvency Service with a plan for reducing the number of complaints that have been open for longer than 12 months by the end of November 2018.

Current position

A plan was agreed and the number of aged complaints has reduced from 149 as at the date of the previous visit in September 2018 to 109 as of the date of this visit.

Initial Recommendation

ICAEW should provide a monthly report (as opposed to the current quarterly requirement) to the Insolvency Service detailing the progress made on complaints open for longer than 12 months from 30 November 2018 until the date of the follow-up visit.

Current position

It was agreed in communications following the visit that the resource implications of providing this information on a monthly basis may impact on progressing complaints. The ICAEW therefore provided its quarterly return as required in January 2019 and again as part of the pre-visit information for this visit.

Initial Recommendation

ICAEW should ensure that it is communicating with the complainant and the insolvency practitioner at least once every three months unless there is good reason not to (for example, both parties are already aware of the reasons for lack of progress).

Current position

It was evident that the ICAEW has made improvements in this area and complainants are being kept updated promptly. There were some isolated incidences where complainants had been chasing the ICAEW for updates. In some cases, the ICAEW explained that more frequent updates were not deemed necessary on certain complaints.

Initial Recommendation

ICAEW should ensure that where deadlines for responses from complainants and insolvency practitioners have passed, there is prompt follow up action. Where insolvency practitioners are not cooperating, ICAEW should consider using relevant Disciplinary bye-laws (DBL 13) to enforce cooperation which may include allegations of non-cooperation.

Current position

All communications from the ICAEW set out deadlines for responses from complainants and insolvency practitioners. In relation to the application of DBL 13, there was limited evidence of non-cooperation by insolvency practitioners since September 2018 in the cases sampled. This means it is yet to be seen whether new procedures to address non-cooperation by adding additional allegations are effective.

Initial Recommendation

ICAEW should ensure regular case reviews are carried out on complaints older than 12 months old, with the outcome of each review recorded on the case file.

Current position

The senior manager is now carrying out monthly case reviews, including discussions, with all case managers which are separate from the case file. The reviews identify cases which are not progressing with priorities given to each case manager to complete ready for the next review. Early indications are they are having a positive impact.

Initial Recommendation

ICAEW should ensure that all committee minutes clearly explain the reason and conclusion reached on each head of complaint, both for a case finding and a no case finding. In respect of no case findings, the reasons should be clearly explained to the complainant.

Current position

There has been a significant improvement in the information contained in the committee minutes. There were no complaints with a 'no case' finding where concerns were identified over the information provided to complainants.

Initial Recommendation

ICAEW should regularly review the performance of the IC to ensure its decisions and outcomes are fair and consistent for all parties. This should include a review of the format and content of the report to the IC, and also the disclosure of the recommended finding to the insolvency practitioner.

Current position

The current format remains as before, however following discussions with the Insolvency Service, ICAEW are now advising complainants when there is going to be a no case recommendation in the same way that the insolvency practitioner is notified in advance of the recommended prima facie case finding.

Initial Recommendation

ICAEW should regularly review the performance of the IC to ensure its decisions and outcomes are fair and consistent for all parties. This should include a review of the format and content of the report to the IC, and also the disclosure of the recommended finding to the insolvency practitioner.

Current position

The current format remains as before, however following discussions with the Insolvency Service, ICAEW are now advising complainants when there is going to be a no case recommendation in the same way that the insolvency practitioner is notified in advance of the recommended prima facie case finding.

Initial Recommendation

ICAEW should publish all cautions issued to insolvency practitioners to increase transparency and confidence over disciplinary outcomes.

Current position

ICAEW agreed as part of their response to the September visit to enter into further discussions with the Insolvency Service, and potentially the other RPBs to look at a further review of the CSG which doesn't currently provide for warnings or other unpublished outcomes. Further discussions have yet to take place as it was agreed that this follow-up visit should take place first and we will therefore now be looking to engage with the ICAEW on this issue.

Initial Recommendation

ICAEW should ensure that where the insolvency practitioner should be in possession of evidence required to progress a complaint at the outset, enquiries are made to obtain it from the practitioner.

Current position

The visit found there were more instances of the ICAEW making enquiries with the insolvency practitioner or seeking information from them as part of the assessment of the complaint, although there remained some examples where such enquiries were not made.

Initial Recommendation

ICAEW should consider the process that allows for the insolvency practitioner to make further representations following receipt of the IC report and recommendations, with the same rights not offered to the complainant.

Current position

It was agreed in discussions following the September visit that in order to make the process fairer and more transparent, the ICAEW would disclose to complainants in advance of the IC meeting if the recommendation was that there would be 'no case' and this was evident in files reviewed.

Initial Recommendation

ICAEW should ensure that details of all disciplinary and regulatory action are notified to the Insolvency Service in line with its reporting obligations as a RPB.

Current position

The ICAEW is now promptly notifying the Insolvency Service of all disciplinary outcomes.

Initial Recommendation

ICAEW should ensure its committees take account of the CSG when determining a sanction against an insolvency practitioner.

Current position

The IC is taking account of the CSG.

Initial Recommendation

ICAEW should ensure that if its committee departs from the guidance by taking aggravating or mitigating factors into account, these are clearly documented and explained to all parties.

Current position

There was evidence that more information is being provided in relation to aggravating and mitigating factors. There was insufficient explanation as to how the level of a fine was reached in one case, and it was not clear from the minutes why an unpublished caution was deemed more appropriate than a published reprimand in two further cases. The Insolvency Service observed the IC on 4 June 2019, where there was evidence of appropriate consideration of aggravating and mitigating factors.

3. Resource and changes made since 2018

3.1 Following the conclusion of the visit in September 2018, ICAEW advised that they had put in place a stable team of experienced case managers. This coupled with the senior manager, who had previously been extensively involved in a very significant investigation, now having available resource, has enabled the ICAEW to address the large number of complaints still open for more than 12 months and improve complaints progression.

3.2 These changes have had a positive impact, which was evidenced on this visit. Unfortunately, the ICAEW has now been further impacted by more recent staffing challenges which are being addressed. The ICAEW is also engaged on a second high profile investigation which is progressing.

3.3 Taken together these recent developments represent a significant short term challenge for the ICAEW to ensure that complaints continue to progress in a timely manner, that they have a fully resourced and experienced team, and that the total portfolios of each case manager do not reach an unmanageable level as happened previously.

3.4 The ICAEW have advised that any additional resource will be fully considered to ensure that all cases are proactively progressed and are currently seeking to recruit a replacement case manager.

4. Complaints progression

4.1 All of the 43 cases sampled were reviewed to determine if they had been progressed in a timely manner since the last monitoring visit in September 2018.

4.2 We noted that in the majority of complaints reviewed, case progression had improved. The total number of complaints that have been open for more than 12 months has reduced from 149 to 109 since the previous visit.

4.3 The senior manager has increased the regularity of the formal case reviews with individual case managers, and these are evidenced on files. Where the reviews identified instances of cases not being progressed satisfactorily, appropriate action was taken-

4.4 We identified progression issues in some instances:

• 5 cases where there were delays in contacting the complainant or insolvency practitioner.
• 4 cases where there were delays in drafting the IC report.
• 5 cases where there were delays in formally closing the case once an internal decision had been reached.

4.5 Although this is a concern, the lengths of the delays identified were significantly shorter than those that were identified in September 2018.

4.6 We also observed that there were some delays in progressing cases due to the need to seek legal advice. In these cases, the advice was sought at a late stage in the complaint (after allegations had been prepared and insolvency practitioner made representations) which resulted in the case not being taken further or being delayed. Seeking legal advice earlier- for example when formulating potential allegations -could avoid delays later on in the complaints process. We do note that more recently case managers are working in the same team as in-house legal advisors, which should enable relevant conversations to take place at an earlier stage.

4.7 We found very limited signs of non-cooperation from insolvency practitioners since our visit in September 2018. In one case we saw a very early reference made to Disciplinary Bye-Law 13 (the bye-law in place to enforce cooperation by insolvency practitioners) which is in line with our previous recommendation. There were no applicable cases where it would have appeared appropriate for the ICAEW to bring forward formal disciplinary matters against the insolvency practitioner for non-cooperation.

5. Investigation of Complaints

5.1 22 of the 43 cases reviewed on the visit were subject to a formal investigation by the ICAEW. It was evident from our review, that ICAEW is progressing more cases to investigation and of those cases, additional matters of complaint (ie not those raised by the original complainant) were being identified and investigated, and this is welcomed.

5.2 The information provided to complainants explaining the decision to close a complaint (either during or prior to an investigation) has improved.

5.3 There were two cases, where the reasons for closure were not sufficiently clear from the closure note.

5.4 We also noted that not all allegations are transferred into investigation and some are closed during the assessment stage. The allegations closed at assessment are not subject to approval by the senior manager at that stage. This was evident in one case, which is not closed and the ICAEW have advised that a full review of the case will be carried out by the senior manager when considering the closure note.

5.5 We saw more evidence of the ICAEW requesting information from insolvency practitioners prior to the formal investigation of the complaint in line with our recommendation.

5.6 We were encouraged to note that case managers were readily considering potential additional allegations as part of any investigation or assessment of the complaint. There were, however, some inconsistencies in approach across the team in identifying those matters depending on the case manager. For example, in one case an explanation and justification for the total fees and expenses was sought from the insolvency practitioner. In another case a similar explanation was not sought and although some fee enquiries were made there was no apparent consideration of whether they were fair and reasonable. The ICAEW should consider how consistency in this area could be improved. One option may be implementing some form of peer review / moderation between case managers when considering potential allegations.

6. Disciplinary Outcomes

6.1 Since the previous visit in September 2018, the IC had issued 10 disciplinary findings against insolvency practitioners. These included 4 unpublished cautions where a case of misconduct against the insolvency practitioner had been made out, but it was deemed not serious enough to warrant a published sanction.

6.2 The minutes recording the decisions of the IC have improved and there is now more clarity and detail. There were, however, two examples where the reasons for the decision were not sufficient to explain the outcome. The cases concerned, were unpublished cautions where there had been a recommendation in the IC report that a consent order should be offered. It was not clear from the reasons documented in the minutes why the cases merited a reduction from a consent order to an unpublished caution. There were a number of references to financial mitigation due to the insolvency practitioner's personal circumstances and ability to pay any fine, but there did not appear to be any consideration given to whether or not a published sanction of a reprimand only would have been appropriate.

6.3 The Insolvency Service observed the IC on 4 June 2019. There were five insolvency complaints considered summarised as:

• 1 complaint with a Prima Facie case recommendation
• 2 complaints with a no Prima Facie case recommendations
• 2 complaints reported via the appeal route available to complainants under Disciplinary Bye-Law 9.4

6.4 It was evident in the first complaint that the Common Sanctions guidance (CSG) was applied appropriately and the consent order issued by the committee appeared appropriate to the conduct.

6.5. Out of the four remaining complaints, there appeared to be sufficient explanation and detail for the cases to be closed. However, in one complaint, further information for closing the case would have been desirable, given that the conduct referred to would typically attract a published sanction according to the CSG.

Annex 1: Pre-visit information and case sampling

7.1 The requested sample cases and discussions on site were aimed at gaining a better understanding of the current position and the continued work to address past recommendations.

7.2 The ICAEW provided the following information in advance of the visit:

• Details of 109 complaints open for more than 12 months.
• Details of 108 complaints that had been closed since 1 October 2018.
• Details of 122 open complaints received since 1 April 2018.

7.3 From these complaints, a statistically representative sample of 43 complaints was selected at random by Insolvency Service statisticians for review on the visit.

7.4 The ICAEW also provided details of 10 complaints where there had been a disciplinary outcome, all of which were reviewed on the visit.

Annex 2: Recommendations

The following recommendations are made for consideration by the ICAEW:

• Where more than one matter of complaint has been made, or more than one allegation has been identified by the case manager, all matters should require senior manager approval before closure.
• The ICAEW should consider how to improve consistency when identifying additional matters of complaint,
• The ICAEW should encourage case managers to seek legal advice, where necessary in complex cases at an early stage to ensure that allegations are appropriate and can be made out based on the evidence gathered. This could reduce the number of times revisions are required and representations are sought.
• The ICAEW should feedback to the chair of the IC, independent of the ICAEW, that explanations of departures from the CSG should also include the rationale for how the committee arrives at a particular non-financial sanction if that differs substantially from the suggested starting point contained in the guidance.