Corporate report

IPA Monitoring Report

Published 15 October 2020

Executive Summary

The Insolvency Service has overall responsibility on behalf of the Secretary of State for Business, Energy and Industrial Strategy for ensuring that the activities of the Recognised Professional Bodies that authorise and license insolvency practitioners are in line with the regulatory objectives set out in Part 13 of the Insolvency Act 1986. Those objectives include having a system of regulating insolvency practitioners that secures fair treatment and ensures consistent outcomes, maximises returns to creditors, and protects and promotes the public interest.

This report presents the findings of a monitoring visit to the IPA, which took place between January and May 2020. The annexes to this report include information provided by the IPA prior to the visits and the IPA’s responses to recommendations made.

1. The IPA - Overview of Regulation

1.1 The IPA is a Recognised Professional Body, which authorises and regulates insolvency practitioners as defined under s391 Insolvency Act 1986. At 1 January 2020, the IPA licensed 618 practitioners, of which 514 were authorised to take insolvency appointments, an increase of around 60 practitioners from a year earlier.

1.2 The IPA carried out various regulatory functions for the Association of Chartered Certified Accountants (ACCA) from January 2017 to December 2019. From January 2020, however, the ACCA ceased to license insolvency practitioners and, as such, that arrangement has ceased. The majority of insolvency practitioners previously authorised by the ACCA are now licensed by the IPA.

1.3 Between 27 and 29 January 2020, we carried out an onsite monitoring visit to the IPA. The Insolvency Service had agreed several recommendations with the IPA in July 2018 and followed up progress in April 2019. This latest visit focussed on assessing progress against previous recommendations and reviewing the handling of specific open complaints.

1.4 Prior to the visit, we obtained information from the IPA as set out in Annex 1.

1.5 In addition, the Insolvency Service accompanied the IPA on two insolvency practitioner monitoring visits as observers in February and March, and also attended a meeting of the Regulation and Conduct Committee (R&CC) in May, again as observers.

Overall findings from the visit

1.6 The IPA has implemented many of the recommendations previously made, as detailed in the monitoring report published in September 2019. Concerns remain over the length of time taken to progress some complaint cases and to provide updates to complainants. The controls that are currently in place to track correspondence and complaint progression need improvement and this report makes further recommendations.

1.7 The IPA introduced significant changes in 2019, including a new monitoring regime for volume providers of individual voluntary arrangements (IVAs). Concerns remain around the advice given to some debtors in relation to IVAs and in some cases further challenge by the IPA’s inspectors appears necessary to check full compliance with professional standards. This report makes further recommendations for improvement in this area and, more generally, in relation to the risk categorisation of insolvency practitioners for monitoring purposes.

1.8 The IPA also streamlined its committee structure, with the introduction of the R&CC. We noted that some cases are carried over to subsequent meetings and this report makes recommendations to improve the information provided to the committee.

Complaints handling

1.9 Our review of a sample of complaint files identified delays in the progression of a significant number of open complaints. The 2019 monitoring report recommended that the IPA introduce a system to track complaint progression with all complaints not dealt with within six months should be expedited. The IPA agreed to implement these recommendations and our findings in 2019 saw an improvement in the progression of aged complaints (those open for more than 12 months). Aged complaints have not been reviewed as part of this monitoring visit as the number of these cases is now low.

1.10 Of the 35 files reviewed, there was evidence in 22 cases of significant periods of inactivity, such as no contact being made with either the complainant or the insolvency practitioner. In some of these cases, there were periods of three to six months from receipt of the complaint prior to any substantial correspondence with either party. While all complaints were acknowledged, in seven cases the complainant was not initially provided with information about the process, the matters being considered for the next steps. The IPA changed its process from November 2019, attaching its information leaflet on complaints to all the initial acknowledgment letters issued. To ensure timely progression and updates to complainants, the IPA has also now introduced a requirement for all cases to be reviewed every three weeks.

Regulatory outcomes

1.11 The R&CC was introduced in July 2019, in place of two separate committees which have now been disbanded, to consider matters of potential misconduct and liability to disciplinary action, whether identified on monitoring visits or through the investigation of complaints and decide on the appropriate action.

1.12 We attended a meeting of the R&CC as observers and noted that the newly introduced allegations drafted in monitoring reports meant that the allegation could be dealt with immediately and preparations for a consent order, where appropriate, could be made. In one case, the committee had to seek guidance from the Secretariat on the determination it was required make as the papers provided to the committee did not make this clear.

1.13 Insolvency practitioners at volume individual voluntary arrangement providers subject to the enhanced monitoring scheme have received 29 advisory notices, focused reviews, reprimands and fines. We are aware of a number of ongoing investigations.

1.14 We identified four cases that were closed where all potential matters of misconduct had not been raised with the insolvency practitioner. Additionally, some disciplinary outcomes appeared inconsistent with the conduct reported and/or the Common Sanctions Guidance. There were also examples, in our view, of the guidance not being applied as intended.

Monitoring

1.15 In response to previous recommendations made by the Insolvency Service, the IPA introduced an enhanced monitoring scheme for volume individual voluntary arrangement providers in January 2019 to deal with a number of concerns. The new monitoring regime is welcomed, and we noted additional engagement from the providers with the scheme. The IPA’s benchmark report on the scheme was published in February. This scheme has started to produce a body of evidence that the inspectors can use to target specific areas for review. Since June 2019, the inspectors have had the ability to issue an advisory notice, which will be placed on the insolvency practitioner’s record. This is regularly being used now to call out unacceptable practices and demonstrate to the practitioner the IPA’s expectations. We will continue to monitor the impact of this new process.

1.16 Since June 2019, the IPA has introduced a system of continuous monitoring for all insolvency practitioners. This involves inspectors being assigned to specific practitioners. Monitoring is undertaken on a risk profiling basis and through a combination of inspections, focussed reviews on specific issues, desktop monitoring and general engagement. This process aims to improve standards through education as well as monitoring and enforcement, where appropriate, and to ensure more consistency in the monitoring process.

1.17 An area specifically considered when reviewing individual voluntary arrangement monitoring and complaint files was whether the arrangement strikes an appropriate balance between the interest of the consumer and the creditors. In five cases, further enquiries should have been made to examine full compliance with Statement of Insolvency Practice (SIP) 3.1.

1.18 Since the start of 2020, monitoring reports following inspections to insolvency practitioners are produced in a shorter and more succinct format. This makes it easier to understand the overall findings from the visit and highlights any key concerns to be considered by the R&CC. All reports are sent to the committee even if no serious findings have been identified. Since July 2019, monitoring inspectors have been able to draft allegations in relation to potential breaches to be considered by the R&CC in the same manner as a complaint and this is one of the ways that the committee can potentially speed up processing issues, as in the past allegations would have needed to be formed through a number of committees and processes.

Progress against previous recommendations

Below is a summary of the recommendations, which were agreed from the previous monitoring visit in April 2019, and the IPA’s progress against them.

Committee Meetings

Recommendation – committee minutes

The minutes of the new committees should have clear action points with a responsible person so that work to be carried out between committees is clearly defined with appropriate ownership and timescales for completion.

Current position

The minutes for the R&CC include more detail of the discussion about specific complaints and monitoring reports by the committee. There remains however, a lack of documentation citing ownership of next steps.

IPA comment

The IPA has a very thorough process for agreeing minutes and is acutely aware of the need for clarity and a comprehensive note of decisions taken. It strives to continuously improve minute- taking. The next steps to be taken are now clearly identified in minutes, usually in the form that ‘the Secretariat is instructed to’.

Recommendation - conflict of interest

To avoid a conflict of interest, members of the committee should not attend and sit at meetings when a case is being heard about either themselves or someone within their firm. To ensure appropriate separation, where an allegation of potential misconduct by a committee member is considered to be very serious, the possibility of convening a sub-committee which is separate to the original committee composition could be considered.

Current position

The normal rules of conflict of interest have been observed. It was agreed that if a case is being heard against them, a member of their firm or in any other circumstance where a conflict arises, it may be more appropriate if that case is heard at the start of the committee meeting and any conflicted members only arrive after it has been considered. The IPA undertook committee training sessions in 2019 where this was covered.

IPA comment

The IPA is pleased to note the acknowledgment that this recommendation has been completed.

Recommendation - terms of reference

The IPA should ensure that the terms of reference for the new committees detail the parameters of their responsibilities and sanctioning powers, and this is reflected in any appropriate by-law change and shared with the Insolvency Service.

Current position

The IPA’s Board approved a set of policies and procedures for the R&CC committee in November 2019.

IPA comment

The IPA is pleased to note the acknowledgement that this recommendation has been completed.

Recommendation – IPA staff involvement

Any IPA staff should refrain from actively providing direction during committee meetings as this inevitably influences discussions and prevents the ongoing identification of areas for further development.

Current position

The IPA undertook committee training sessions in 2019 where this was covered.

When observing the committee in May 2020, the Secretariat provided answers when questions were posed.

IPA comment

The IPA is pleased to note the acknowledgement that this recommendation has been completed.

Monitoring

Recommendation – enhanced monitoring

The IPA should continue to monitor the impact which the new enhanced monitoring regime for volume IVA providers has on its resources and be reactive to any additional resource required.

Current position

The IPA published the first Benchmark Report in February 2020, with a full analysis of the scheme and its emergent impacts. The IPA has assigned three inspectors to the volume IVA provider monitoring scheme to provide consistency and reports that the Chief Inspector also focuses a significant proportion of their time in this area.

IPA comment

The IPA now has an additional dedicated member of the VPR team and the Chief Inspector focuses a significant proportion of their time in this area.

Recommendation – advisory notices

The IPA should develop a policy for the issuing and recording of warnings by an inspector and regularly review the use of this power to make sure that the policy is being used in a fair and consistent manner. The IPA should consider what options would be available to a practitioner who wanted to challenge the warning.

Current position

The IPA has developed a policy for issuing advisory notices and this process has been used on a number of occasions. The advisory notices can be issued whilst onsite at the visit or when reviewing certain low-level breaches when the report is drafted post visit. Consistency is achieved through regular discussions between inspectors and a single senior inspector reviewing all reports.

IPA comment

The IPA is pleased to note the acknowledgement that this recommendation has been completed.

Recommendation – Selection of IVA cases (vulnerable consumers)

When reviewing IVA cases, IPA inspectors may wish to actively include within their selection cases where the consumer is considered to be vulnerable, with a particularly low income and small dividend returns to creditors. In such cases, if the consumer could potentially have been better suited to an alternative solution, this should be noted.

Current position

The IPA uses data from its enhanced monitoring to pinpoint key issues to carry out focused reviews. There was evidence when reviewing files that the IPA is considering vulnerable consumers and low dividend IVAs when sampling cases.

IPA comment

The IPA’s responsibility is to ensure that IPs comply with their obligation to be satisfied that the consumer can make an informed judgement about the suitability of the option chosen. Where infractions of that responsibility under SIP 3.1 are suspected, especially where there may be misconduct related to mis-selling, the IPA does, and has, acted.

The IPA will review its policy in light of the new ethics guidance and will be offering training to its members about the new emphasis on public interest as well as creditor return and consumer choice. However, regulating public interest will be extremely challenging, and the IPA would welcome active support from the Insolvency Service in this area.

Recommendation – risk profile

The IPA should review its new risk profile for practitioners and consider if additional indicators of risk should be added. A decision should be made about how the IPA monitors will schedule visits and whether a system by which the monitors spread the practitioners from the same firm over different years may assist to reduce the risk of those practitioners only being seen every six years.

Current position

A large number of practitioners were categorised as high risk and not all may be inspected within a year. The IPA needs to continue to review risk ratings and has brought in additional inspection resource.

IPA comment

The IPA will continue to keep the number of high-risk IPs under review and will assess the strategic assessment criteria, which we have attempted to be comprehensive yet simple. It is hoped that over time, and as practices improve, the number of high-risk IPs will reduce.

It is inevitable that because the risk profiling system is new, there will be a preponderance of IPs categorised as potentially high-risk until such time as a substantial number of further inspection visits have taken place and IP’s risk downgraded following a positive inspection.

Bordereaux

Recommendation

When an insolvency practitioner ceases to hold an appointment taking licence and a final bordereaux return is submitted, the IPA should carry out relevant checks to be assured that the practitioner has concluded or transferred all cases to another practitioner.

Current position

The IPA has developed a table to track all practitioners who have ceased to hold a licence at the end of the year. A dip sample of cases listed in the bordereaux return is taken to ensure that cases have been closed with all actions completed.

The IPA needs to ensure that this system works for licence withdrawals and surrenders during the year.

IPA comment

The IPA is not aware of there being a problem in relation to in-year licence surrenders and withdrawals,but has reviewed practices to ensure in-year issues are picked up.

Detailed Findings

2. The Regulation and Conduct Committee

2.1 In July 2019, the IPA introduced a new committee structure to ensure the timely progression of regulatory matters and a joined-up approach between its monitoring and complaints functions.

2.2. The R&CC is essentially a merger of the previous Investigation Committee and the Membership and Authorisations Committee. Rather than matters being passed between two committees, the R&CC considers matters relating to both monitoring reports and complaints. The membership of the committee is a mix of experienced insolvency practitioners and lay members. The R&CC must have a lay majority to be quorate.

2.3 The committee has the power to issue a warning, sanction (in accordance with the common sanctions guidance) and to restrict or remove a practitioner’s licence. The committee also has the function of granting licences to new practitioners and assessing any licence renewal concerns raised by the secretariat.

2.4 Both regulation officers who investigate complaints and monitoring inspectors can attend committee meetings. This enables the committee to directly raise matters and probe details, rather than defer to a later hearing to await further information to be provided. The deputy head of the monitoring team attends all meetings to encourage consistency of approach when highlighting breaches discovered on a visit and to enable the committee to better understand any potential systemic failures.

2.5 The committee receives papers for all hearings, including copies of monitoring reports and associated query sheets (which were raised with the practitioner on the visit by the inspector) and the response received. For complaints, a copy of the regulation officers report and annexed evidence is considered. Copies of all committee minutes from April 2019 onwards were provided to the Insolvency Service by the IPA. The minutes of the R&CC are generally appropriately detailed, and the IPA explained its extensive quality assurance measures to ensure these are full and proper records.

2.6 On occasions, we found that cases are deferred to a subsequent meeting because certain evidence or information had not been gathered or was not readily available at the meeting. Although it is accepted that the secretariat cannot always predict what the committee may ask for, if a case is put back, the secretariat should ensure the required information is gathered efficiently so that a decision can be made at the next meeting so as to avoid further delays.

2.7 The Insolvency Service observed the meeting of the R&CC in May 2020, which was held by video conference due to the social distancing requirements during the coronavirus pandemic. The meeting was well organised, and the agenda included the consideration of licence applications, some byelaw 2.3 reports (a report where a decision to close the case is made by the IPA and the complainant has challenged this decision and asked for a short form report to be considered by the committee to ensure that decision was sound), three complaints and two full monitoring reports. The technology facilitated discussion and documents were shown on screen to illustrate certain points. A number of complaint cases were concluded by way of consent order and the common sanctions guidance was used. The Insolvency Service discussed the application of the common sanctions guidance generally with the committee at a training session in May.

2.8 The committee challenged the IPA’s recommendation to close one monitoring file, which demonstrated its ability to make evidence-based decisions rather to just accept the recommended course of action.

2.9 The committee did, on one occasion, seem unsure of the question it was being asked to consider and the decision that it was being asked to make. Consideration should be given to the way in which the information the secretariat prepares for the committee is presented, to ensure that the committee is aware of the decision being sought; for example, a summary sheet or information on the agenda document could specify the where decisions are required. Further training for the committee on what it can do may be useful now that there are new allegations attached to monitoring reports.

2.10 In three cases, it was not entirely clear to us from either the R&CC minutes or the subsequent publicity notices, how the committee arrived at the final sanction having taken into account the aggravating and mitigating factors. In another case involving unauthorised remuneration, it was not apparent why only a warning was given. While we accept that the committee has discretion in arriving at a determination, it would be helpful to understand the weight given to any aggravating or mitigating factors in deciding the outcome. When an aggravating or mitigating factor is listed as serious, it is not always clear if any additional weight is placed on this by the committee as the final outcome does not appear to currently be fully explained especially in publicity notices. In one case, where an aggravating factor was listed on the notice and no mitigation cited, the committee decided to remain at the starting point of £2,000 without explanation when applying a financial sanction.

2.11 In a separate case, the terms of the consent order offered by the R&CC were amended on a number of occasions due to representations made by the insolvency practitioner. While the IPA’s Conduct Rules provide a procedure for an insolvency practitioner to offer further information to the R&CC to allow it to reconsider its decision, we were not able to fully understand the reasons for the amended outcomes from the R&CC minutes. The IPA has advised that this was a unique case and will provide further details to us once it has access to its office files.

Regulation and Conduct Committee Recommendations

1. The IPA should ensure that full reasons for decisions of the R&CC are always recorded.
2. To avoid unnecessary delays, the secretariat should ensure that, in addition to the relevant report at the meeting, all the relevant information about the practitioner can be made available to the committee including open complaint cases, recent monitoring reports, advisory notices, sanctions and intelligence. Where appropriate, this information can be put to the committee after a prima facie case is found.
3. The secretariat should consider further training for the committee on the different types of decision it may be expected to make, including in relation to allegations attached to monitoring visit reports.

3. Complaints Handling

Complaints sampled and reviewed onsite (35 complaints reviewed)

3.1 The sample of files reviewed raised serious concerns about the progression of a number of complaints. This was particularly evident in the time taken for the IPA to formally respond to some new complaints. Though acknowledgments are routinely made, there were examples where the IPA exceed its own published timeframes of three months to send a substantial letter to complainants summarising the allegations or to make enquiries to insolvency practitioners. In one case, no response had been issued to the complainant at the time of the visit, after new matters were raised and responded to by the practitioner some three months prior to the file being reviewed.

3.2 When a complaint is received from the Insolvency Service’s Complaints Gateway, a standard acknowledgement letter is sent out to the complainant. There were some cases where the complainant received the standard acknowledgment, which contained little information and the complaints process leaflet had not been included. These were followed up by a more substantial letter, however in 8 cases it took between three and six months for this to be sent.

3.3 Following initial assessment, a decision is made on whether the complaint should be investigated. Where it is determined that an investigation should be undertaken, a regulation officer is assigned to the case. The complainant is contacted to confirm that the IPA has fully understood the complaints being made before putting them to the insolvency practitioner for response.

3.4 When we visited in 2018, some progression issues on complaint cases were identified. A recommendation was accepted to look at the best way to avoid these in the future with a tool to track cases to ensure complainants and practitioners were kept appraised of progress. As a result, the IPA introduced a management tool to track case progression and inform management discussions with regulation officers about their case load. An excel spreadsheet identifies cases over six-months old and colour codes all of the cases the senior regulation officers should keep track of with the regulation officer in order to prioritise work. This does not appear to have addressed the issue and a failure to respond to complainants in a timely manner was identified in 22 of the 35 cases reviewed to varying degrees.

3.5 We identified that there is currently no system to track all letters and emails arriving into the IPA. A simple spreadsheet is being used because the current case management database is out of date. The regulation officers were not uploading the dates of incoming correspondence for most cases in a timely manner, which can allow for potentially missing key performance indicators. If it is not recorded, managers cannot readily identify if a response has been provided nor ensure that next steps have been completed.

3.6 The IPA provided details of a new IT system, which should soon be introduced, and is aimed at assisting the regulation officers to track their cases and prioritise work. A 15-day rule had recently been implemented, so that all regulation officers review every file they are working on at least once every three weeks to ensure it is progressing.

3.7 Each regulation officer currently has approximately 35 cases. Some of the regulation officers deal with more complex cases and others those that are considered unlikely to progress to the committee. The IPA plans to provide further training to its regulation officers and this could prove beneficial in order to more evenly spread out different types of cases across all members of the team. The two managers in the complaints team both have a large caseload of their own, which appears to be impacting on their role of supervising the regulation officers and agreeing next steps to ensure the timely progression of cases.

3.8 As can be sometimes appropriate, there was evidence that some cases were being put on hold when practitioners were in litigation with the complainant. In November 2019, the IPA employed a barrister to provide legal advice. Having the expertise to determine if a complaint can be progressed whilst litigation is ongoing should enable the IPA to manage the expectations of all parties.

3.9 In one case we found evidence in the insolvency practitioner’s response to the complaint that indicated there were other matters potentially appropriate for further enquiry. We did not, however, find evidence that the IPA had considered these additional matters, nor were they raised with the insolvency practitioner.

In a further three cases there were delays in contacting the complainant to inform them of progress with their case and the decision not to send it to R&CC. The letters to confirm closure should be actioned as soon as possible after the decision is made.

Complaints handling recommendations

1. Pending the introduction of its new IT system, the IPA should ensure that all correspondence is recorded and replied to within its published time frames.
2. The IPA should undertake a review of all complaint files to ensure that they are up to date.
3. The IPA should ensure it substantively contacts all parties to a complaint at least quarterly and that all direct contact with the IPA is responded to in accordance with its published time frame, and that timeliness is monitored by the senior regulation officer who manage the complaints teams.
4. The IPA should investigate all allegations which have been put to the practitioner fully, in order to be able to evidence why an allegation was not put to the R&CC for consideration.

4. Monitoring of Insolvency Practitioners: Findings

Monitoring files sampled (including reports and committee outcomes): 30

4.1 The files sampled represented a mix of monitoring inspections to volume individual volume providers, mid-size firms and sole practitioners. In each case, the IPA provided electronic copies of all documents relating to the visit strategy, risk profiling, queries raised by the inspector to the practitioner whilst onsite and full inspection reports.

4.2 The IPA has developed a risk profile which is used for all insolvency practitioners, it is a system by which every practitioner is assessed against the following criteria:

• Risk from discipline
• Consent order/disciplinary
• Warnings
• Complaints in last year
• Number of open cases (date they were updated)
• Anti-Money Laundering risk score
• Advisory notices
• Any other relevant consideration

From this assessment, each practitioner is given either a low, medium or high risk status. This determines how regularly they are monitored onsite by the IPA’s inspectors. Those which are high risk should be seen annually, medium risk once every 3 years, and low risk between 4 to 6 years dependant on the firm and whether other practitioners are being visited.

4.3 The content and recommendations of monitoring reports and the inspector’s opinion on the practitioner’s risk are important and feed into the overall rating. The ratings are used to both plan overall resource requirements and assist in determining a strategy for the monitoring visits. The monitoring team had categorised 95 practitioners as high risk (including newly licensed IPs), they are currently prioritising these and carrying out visits. The findings will assist in determining the current risk with a view to possibly lowering the risk rating of some.

4.4 Having nearly 20% of insolvency practitioners in the high risk category means that some monitoring visits will not have been carried out within a year as anticipated when the risk profile was introduced in April 2019. Some practitioners are included in the high risk category due to either being new to the IPA or to the profession, or because they currently have one or more high risk ratings in a particular category.

4.5 Each insolvency practitioner is assigned an inspector who will carry out visits and undertake a programme of continuous monitoring, this process is ongoing and nearly complete. The inspector will also carry out a risk profile assessment and determine the anti-money laundering risk profile (if the IPA is the supervisor for that practitioner, as some practitioners have a supervisor at another regulator).

4.6 The monitoring team will be losing an experienced member of staff soon, but the IPA is recruiting 2.5 posts for inspectors. This is in response to the increased workload arising from the volume IPA provider enhanced monitoring scheme and the large number of insolvency practitioners in the high-risk category.

4.7 Inspectors have been able, since July 2019, to draft allegations to put to the R&CC following a visit if they discover breaches which potentially warrant regulatory sanctions. As noted above, there was evidence of this process being used. The inspectors are also able to issue an advisory notice. This is a warning about an isolated minor technical breach, which alone would not meet the standard for regulatory or disciplinary action. The IPA has developed a policy for when the notice can and should be issued by the inspectors. A number of advisory notices have already been issued and it is envisaged that if the same breaches or behaviours are evident in future, then the IPA would (if necessary) put an allegation to the R&CC. Previous advisory notices will, in those circumstances, be considered an aggravating factor.

4.8 The case samples selected by the monitors for review raised some concerns, the type and volume of cases tended to be reasonably consistent for all practitioners across all the files viewed. In one instance, the practitioner had a single bankruptcy case, which was not selected by the inspectors. The case was reviewed by the IPA during a previous monitoring visit, but a further review of progression might have been appropriate.

4.9 We attended two monitoring visits as observers as part of this review, one to a volume provider and one to an individual practitioner.

4.10 The observed monitoring visit to the individual practitioner was the first since they had moved from being licensed by another Recognised Professional Body and was therefore classified as a high risk. It was acknowledged that previous failings had been identified, including a failure to adequately evidence investigations undertaken. The case mix reviewed was sufficient in the context of the practitioner’s current case load. The inspector noted that, whilst there had been some improvement, there were still issues regarding the level of investigation undertaken, and not appropriately recording considerations and decisions. The inspector recommended that an advisory notice be issued in relation to the lack of investigation records and also in relation to a statement of affairs fee drawn without approval. It was made clear that the outcome may change once the report was reviewed by the R&CC. The inspector highlighted the importance of complying with anti-money laundering requirements, particularly where the type of business presented an inherent money laundering risk and identified that this was not being sufficiently considered in all of the cases reviewed. Recommendations for improvement, such as anti-money laundering training, were advised. The R&CC classed the practitioner as high risk and suggested a further visit within 12 months to review whether improvements had been implemented.

Complaint recommendations

1. The IPA should consider how the advisory notices should feed into the complaints process for the R&CC, including whether details of previous notices (for example, relating to a similar breach) should be noted in the complaint report and whether training needs to be provided to explain their significance to members of that committee.
2. The IPA should use all tools available to accurately risk profile practitioners into appropriate categories so that resource can be targeted to the highest risk practitioners.
3. The IPA should report all advisory notices to the Insolvency Service in the same way it does with any other disciplinary or regulatory action.

5. Bordereaux Findings

5.1 The IPA receives monthly bordereaux returns from all its insolvency practitioners, which lists all open cases for each practitioner and their bonding level. It was recommended in April 2019, that the IPA should develop a system by which it checks all returns for those practitioners who will cease to hold a licence to ensure that all open cases are transferred to a successor practitioner immediately.

5.2 The IPA was able to demonstrate compliance with this recommendation, which included the tracking of insolvency practitioners that did not renew their licences in January 2020. A randomised sample of cases, which were deemed closed, had been checked to ensure that this was correct, and that all the relevant closure actions had been taken. All open cases for those insolvency practitioners were checked by the IPA to ensure they had been transferred to other practitioners.

6. Regulation of volume IVA practitioners

6.1 The IPA regulates a large proportion of insolvency practitioners operating in the volume individual voluntary arrangement sector (approximately 70%). A volume provider is defined in the ‘guidance for monitoring volume IVA and Protected Trust Deed Providers’. We have concerns with the volumes of cases undertaken by some of these practitioners and the way in which cases are supervised which suggests a lack of control.

6.2 The IPA has introduced a new system of enhanced monitoring for volume IVA providers, this approach is welcome but has not been running long enough to provide evidence of significant change in this part of the market. The scheme currently covers seven firms, with 18 IPA member practitioners working for them. These practitioners are subject to additional onsite monitoring (more frequently than the yearly requirement to visit in the guidance), desktop monitoring (offsite), monthly statistical submissions and ad hoc focussed reviews. Those who are not in the scheme should be monitored at least annually.

6.3 Three inspectors specialise in carrying out work in the volume individual voluntary arrangement sector, including the enhanced monitoring scheme. The scheme involves regular contact with the firms. The IPA also receives a snapshot of statistical data each month and carries out focused reviews each quarter, of which at least two a year are undertaken on site. The focus of these reviews can be related to complaints received, ordered by the R&CC due to previous monitoring concerns, or an area the IPA has not recently reviewed.

6.4 The enhanced monitoring means that the IPA has more available data and information, and the IPA considers there is some evidence that this may be changing practitioner behaviours.

6.5 We reviewed 3 monitoring files and 11 complaints relating to practitioners at firms who are part of the enhanced volume provider scheme. Both monitoring findings and complaints can be drawn together at the R&CC, and reoccurring issues at the same volume firm would be escalated and dealt with on a cumulative basis (any sanction would increase with the amount of times it had been committed).

6.6 Since the introduction of the scheme, the IPA had brought forward 16 cases of potential misconduct, of which 5 have currently resulted in a sanction. There are several ongoing large investigations with regular reports on various matters being drafted and submitted by the inspectors, and allegations being submitted to the R&CC. We acknowledge that some of these cases are significant resource burdens. These cases remain ongoing with outcomes expected soon.

6.7 The monitoring files reviewed suggest that case reviews are thorough and, if necessary, focused reviews are turned into full reviews. A focused review is aimed at a particular part of the case (for example, opening or closing actions, or advice provided to the debtor) whereas a full review is in depth covering all aspects of the case. Whilst observing the inspectors, we saw evidence of concerns identified from electronic file review being followed up by a review of advice calls to understand the reasons for proceeding with an individual voluntary arrangement.

6.8 The case sampling during the observed monitoring visit to a volume individual voluntary arrangement provider focused on some of the key issues in the market; for example, benefit only individual voluntary arrangements. The inspectors also held meetings with key members of the practitioner’s support staff to understand how the business ran and who held key responsibilities. We observed one meeting with the cashier, where the lead inspector was shown the daily reconciliations, access to the client and office accounts and this enabled challenge to ensure that the movement of funds was being carried out properly.

6.9 The statement of insolvency practice 3.1 advice call is evidence of whether the consumer was given the correct advice to make an informed decision and if their circumstances fit an individual voluntary arrangement. We note that the IPA now carries out five times as many call reviews under its new scheme than under prior arrangements. When reviewing the files and calls, the inspectors spend a considerable amount of time considering cases. Following the observed visit, we reviewed the monitoring report and queries made. A number of allegations had been drafted in relation to statement of insolvency practice 3.1 advice, income and expenditure failings and a general overarching concern that some individual voluntary arrangements are failing due to their unsustainability which should be evident at the start of the process.

6.10 Thefiles reviewed for two large providers (one not within scope of the enhanced monitoring regime) both showed examples of poor advice and potential breaches of statement of insolvency practice 3.1 from the query sheets and findings annexed to the final report. Whilst several individual case queries were raised, we saw no evidence of the viability of particular individual voluntary arrangements being raised with the insolvency practitioner. One of the principles of statement of insolvency practice 3.1 requires insolvency practitioners to present an individual voluntary arrangement proposal that strikes a fair balance between creditors and consumers. We identified eight cases where the IPA visit record did not evidence how the insolvency practitioners had satisfied himself/herself of compliance with this element of the statement of insolvency practice. Furthermore, the IPA failed to challenge misleading information provided by the insolvency practitioner in proposals concerning fees that would be charged by the Official Receiver in a bankruptcy case.

6.11 In relation to one provider, it was not clear whether certain disbursements were appropriately categorised and approved by creditors. The individual voluntary arrangement proposals (all cases from 2019) stated that the firm was using a claims management company which was disclosed as not being an independent third party (although not, in our view, particularly clearly). The proposals, however, detailed the various payments to the claims management company as category 1 disbursements. There was no evidence that the IPA challenged the insolvency practitioner about the categorisation of these disbursements to satisfy itself that they had been validly approved.

6.12 There are several practitioners who have received low level fines for repeated breaches arising from both complaints and monitoring visits. These include breaches of statement of insolvency practice 3.1 and requirements in relation to fees and disbursements, a lack of or breakdown in communication, or a failure to issue timely completion certificates. These cases had historically been dealt with in isolation and there does not appear to be evidence that multiple breaches, including for the same behaviours, is treated as a more serious matter. If this were the case, it could be dealt with by a more substantial fine or even restriction of a licence until the practitioner can show an acceptable improvement. We, however, note the IPA’s ongoing investigations in a number of cases.

6.13 We saw evidence of the IPA raising appropriate queries with insolvency practitioners where concerns had been identified over the quality of advice provided to the consumer and the levels of income and expenditure. Whilst there was also evidence of the IPA taking these factors into account when considering any appropriate regulatory action on these cases following the monitoring visit, it was not evident from the electronic file (or the query sheets) that the IPA had specifically asked the insolvency practitioner to provide an explanation of how the individual voluntary arrangement was viable and fair to all parties involved. Going forward, we would recommend that the IPA should incorporate these additional questions into its monitoring programme. In instances where the R&CC find a prima facie case that this balance cannot be evidenced, there should be consideration on a case by case basis of requiring an undertaking from the practitioner to revoke the individual voluntary arrangement and return the consumer to the position they were in before the individual voluntary arrangement began.

Regulation of volume individual voluntary arrangement practitioner recommendations

1. When the IPA inspectors listen to a SIP 3.1 advice call, they should consider whether an individual voluntary arrangement has been evidenced as an appropriate solution for the debtor and that it strikes a fair balance between the interests of the debtor and creditors (Paragraph 5 of SIP 3.1).

2. Allegations put to the R&CC for breaches of SIP 3.1 should consider requiring the insolvency practitioner to restore the debtor’s position where there is evidence that an IVA was not an appropriate solution and did not strike a fair balance between the interests of the debtor and creditors.

Annex 1: Information requested from the IPA

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

Documents requested and reviewed before the onsite visit were:

1. Minutes of all Investigation Committee, Membership and Authorisation and R&CC meetings from April 2019 to December 2019.

2. A list of all monitoring visits carried out in 2019 (12 months) in order that a randomised sample of 30 files could be extracted.

3. A list of all complaint files currently open, a copy of the current aged complaint list (complaints over 12 months old) in order that a randomised sample of 40 open and 5 aged complaints could be requested.

4. A list of all complaints that have resulted in an unpublished warning in the last 12 months in order to take a 50% sample to check whether this was an appropriate sanction in the circumstances of the case.

5. A copy of documents relating to the new enhanced process for monitoring of volume individual voluntary arrangement providers, including documents that are sent to the firms, a list of what should be returned and how regularly.

6. A copy of all policies relating to the newly formed committee.

7. A copy of the risk profile for all practitioners.

Annex 2: Recommendations and the IPA’s responses

R&CC Recommendations

Recommendation

The IPA should ensure that full reasons for decisions of the R&CC are always recorded.

IPA Response

Implemented

Substantial changes and improvements have been implemented during the year since the Report was carried out.

Full reasons are recorded in the minutes and there is a thorough quality assurance and clearance process.

On the specific case raised, the minutes make clear, that the R&CC used the correct starting point based on the serious level, applied the aggravating factor that there was a potential loss to the estate, but mitigated it because there had been no actual loss to the estate; the insolvency practitioner had taken action to rectify the position and the insolvency practitioner had compensated the estate from his own funds.

The IPA welcomes the forthcoming review of the common sanctions guidance.

Recommendation

To avoid unnecessary delays, the secretariat should ensure that, in addition to the relevant report at the meeting, all the relevant information about the practitioner can be made available to the committee including open complaint cases, recent monitoring reports, advisory notices, sanctions and intelligence. Where appropriate, this information can be put to the committee after a prima facie case is found.

IPA Response

Partially Implemented, one element not accepted.

The IPA follows the practice as recommended: information is made available to the committee about precedent and recent relevant conduct after a finding has been made but prior to sanction.

The IPA will not put before the committee information about open, undecided complaints, because this would be unfairly prejudicial to the IP.

Recommendation

The secretariat should consider further training for the committee on the different types of decision it may be expected to make, including in relation to allegations attached to monitoring visit reports.

IPA Response

Agreed

Last year, the IPA introduced training for all committee members. It has also carried out further specific training this year, including on the Common Sanctions Guidance. The IPA will consider ongoing training for the members of the R&CC taking an active continuous learning approach.

Complaints recommendations

Recommendation

Pending the introduction of its new IT system, the IPA should ensure that all correspondence is recorded and replied to within its published timeframes.

IPA Response

Implemented

This Report relates to a visit which took place in January 2020. Substantial changes and improvements have been implemented during the previous and last year.

From 2019, the IPA has carried out a thorough and significant change programme, modernizing processes, improving standards and updating its management systems. We are pleased to note that many of these improvements are noted positively in the report. Prioritisation is necessary in any change programme and the IPA focused on reducing aged complaint numbers, which we were also pleased to note, were acknowledged as much improved.

This year we have turned to standard complaints. A new progression system has been introduced, new capability hired, new performance standards required, training carried out and new internal KPIs established.

As a result, the number of open cases has reduced by more than 40% since the visit in January 2020 and external KPIs are being met.

Recommendation

The IPA should undertake a review of all complaint files to ensure that they are up to date.

IPA Response

Implemented

A review of complaints files has been carried out as part of the overall revision process described under the IPA response to recommendation one.

Recommendation

The IPA should ensure it substantively contacts all parties to a complaint at least quarterly and that all direct contact with the IPA is responded to in accordance with its published time frame, and that timeliness is monitored by the senior regulation officers who manage the complaints teams.

IPA Response

Implemented

KPIs are now met and compliance monitored by practice manager, senior management committee and Board.

A record is maintained to track all communications so that regular contact is maintained with all parties.

Recommendation

The IPA should investigate all allegations which have been put to the practitioner fully, in order to be able to evidence why an allegation was not put to the R&CC for consideration.

IPA Response

Implemented

The IPA investigates all relevant information to the extent necessary to ensure that where ‘facts and matters come to the attention of the Secretary he will in the first instance consider whether they indicate the Member may have become liable to disciplinary action’ in accordance with Conduct Rule 2.2. Information received is only treated as an allegation when, following investigation, a potential liability to disciplinary action is identified. Otherwise, the case is closed and it is explained with reasons to a complainant who, if they disagree, can ask the R&CC to review the decision.

In the case referred to in paragraph 3.9, the IPA considers that the regulation officer assessed all the facts but concluded that there was no potential issue to consider.

Monitoring recommendations

Recommendation

The IPA should consider how the advisory notices should feed into the complaints process for the R&CC, including whether details of previous notices (for example, relating to a similar breach) should be noted in the complaint report and whether training needs to be provided to explain their significance to members of that committee.

IPA Response

Implemented

The R&CC members received training about Advisory Notices and their significance. In line with its general continuous approach, the IPA will review the application of Advisory Notices and their efficacy. The IPA’s initial assessment is that Advisory Notices are a helpful new tool in monitoring and conduct management.

Recommendation

The IPA should use all tools available to accurately risk profile practitioners into appropriate categories so that resource can be targeted to the highest risk practitioners.

IPA Response

Implemented

Risk management is a key part of the IPA’s resource management toolkit.

It is inevitable that, because the risk profiling system is new, there will be a preponderance of insolvency practitioners categorised as potentially high-risk until such time as a substantial number of further inspection visits have taken place. Until an insolvency practitioner has built up an inspection record, IPA appropriately acts cautiously in assessing potential risk. Progress in working through the high-risk list is of course hindered by the current COVID 19 situation, although as much remote monitoring as possible is still being carried out. The IPA has continued to recruit new inspectors to ensure the areas is fully resourced.

Recommendation

The IPA should report all advisory notices to the Insolvency Service in the same way it does with any other disciplinary or regulatory action.

IPA Response

Agreed

Advisory Notices will be notified to the Insolvency Service with notice of disciplinary or regulatory action, subject to the understanding that Advisory Notices have not been introduced as disciplinary actions and should not be made public.

Regulation of volume individual voluntary arrangement practitioners Recommendations

Recommendation

When the IPA inspectors listen to a SIP 3.1 advice call, they should consider whether an individual voluntary arrangement has been evidenced as an appropriate solution for the debtor and that it strikes a fair balance between the interests of the debtor and creditors (Para 5 of SIP 3.1).

IPA Response

Partially implemented

The IPA takes allegations of mis-selling extremely seriously and can, and has, acted where misconduct is suspected. The IPA’s regulatory responsibility is to ensure that insolvency practitioners comply with their obligation to be satisfied that the consumer can make an informed judgement about the suitability of the option chosen.

In light of the new Ethics Code of Practice, the IPA will review its policy on the new balance between the public, debtor and creditor interests. Given the potential for interpretation of the public interest test, the IPA would welcome support from the Insolvency Service on implementing the regulatory aspects of the new guidance.

In recognition of how important statement of insolvency practice 3.1 is, extensive call reviews are a key feature of its ground-breaking and thorough new regulatory approach for volume providers, which the IPA is glad the Insolvency Service welcomes.

Recommendation

Allegations put to the R&CC for breaches of SIP 3.1 should consider requiring the insolvency practitioner to restore the debtor’s position where there is evidence that an IVA was not an appropriate solution and did not strike a fair balance between the interests of the debtor and creditors.

IPA Response

Accepted

The R&CC has a power to offer a Consent Order containing an undertaking and will consider doing so where it is appropriate. However, it is important to note that under current legislation, there is no guarantee that such an offer would be accepted. The IPA would welcome additional powers to affect this recommendation more readily.

IPA Inspectors currently check, not only whether there is a fair balance but also whether the Nominee has satisfied himself that the individual voluntary arrangement has a reasonable prospect of being implemented. Where appropriate, Inspectors will and have challenged fair balance.