The government has announced a consultation on creating a single regulator for insolvency practitioners and extending regulation to all firms that offer insolvency services.

UK Government

Currently, insolvency practitioners are regulated by four independent professional bodies, however, the government has set out new proposals to reform and simplify this. The 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
  • Creating a public register of all individuals and firms that offer insolvency services
  • Creating a system of compensation and redress. 

The government’s statement said these changes “will help strengthen and modernise the regulatory regime which has been in place for over 30 years and needs reform in order to be able to keep pace with developments in the insolvency market. 

“The reforms will ensure a robust and proportionate regulatory regime which enhances consistency, improves transparency and, importantly, will also regulate firms that offer insolvency services rather than just individual insolvency practitioners.” 

It added that regulation at the firm level would see the insolvency sector brought into line with other sectors such as audit and the legal professions and claimed the majority of firms offering insolvency services would not be expected to face increased costs unless there are instances of wrongdoing. 

Business Minister Lord Callanan said: “The proper functioning of the insolvency regime is vitally important to support business investment and growth and to provide a safety net for individuals in severe financial difficulty. 

“Those most impacted by insolvency need confidence in the professionals involved, and the UK regime has a strong reputation for delivering the best outcomes possible when insolvency occurs. In order to maintain that confidence, the regulatory regime must keep pace with the times, and these proposals to introduce an independent regulator will strengthen the regime and deliver greater transparency, accountability, and protection for creditors, investors, and consumers.” 

The Insolvency Service is currently responsible for oversight of the regulation of the recognised professional bodies and following an earlier Call for Evidence, it said the current framework was disproportionately complex, with four bodies and involved in regulating fewer than 1,600 individuals. 

The Government is also proposing a public register that will 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. 

In addition, where there has been a mistake or wrongdoing by an individual or firm offering insolvency services, there will be a new formal mechanism that will allow for compensation to be paid if appropriate. The consultation will close on 25 March 2022. Simon Renshaw, director with Company Debt, comments: “We support high levels of regulation and transparency. An insolvency practitioner will often be approached when a business is facing huge challenges and any business facing insolvency must be able to trust those they engage – the advice they receive from professionals can be absolutely critical. We look forward to the publication of this consultation.”