Insolvency and restructuring trade body R3 have warned of a major conflict of interest issue brought by the government’s proposals to shake up the insolvencies industry with a new independent regulator.
The government want to introduce a single regulator, which would sit within government agency Insolvency Service, to oversee the UK insolvency sector. The reforms would bring an end to three decades of self-regulation.
The Insolvency Service called the current system, with four membership bodies and the government in charge of regulating 1,600 individuals, “disproportionately complex” and one that “has led to weakness in the regulatory system”.
By relying on four different bodies which produce information in different formats the existing regulatory framework also “lacks transparency and has inconsistencies”.
Colin Haig, president of R3, the trade body for insolvency and restructuring, said: “The publication of the Government’s consultation will be welcomed by many in the profession.”
Improvements can and should be made, Haig said, and the trade body support a single regulator in principle.
But he warned that the plans, published today, for a single regulator operating within the Insolvency Service raised a major conflict of interest issue.
Under the current proposals, “the Government would set insolvency legislation, regulate insolvency practitioners and then effectively compete with those same insolvency practitioners for work — while not being subject to the same regulation itself,” Haig said.
“The whole system depends on high standards of conduct, integrity and fairness being demonstrated by insolvency practitioners,” agreed Dr Roger Barker, policy director at the Institute of Directors, who welcomed the plans which, he said, would “simplify” oversight of the industry.
Others have responded with caution to the news.
“Creating a new regulator is a headline, but getting it to work properly to ensure the insolvency profession – which provides a vital and underestimated role in UK corporate governance – can function properly will be key,” said Alex Jay, head of insolvency and a partner at law firm Stewarts.
Giles Boothman, global head of restructuring at law firm Ashurst said: “The current system has been in place, largely untouched, since 1986, and so it feels appropriate to review whether improvements need to be made, balanced against adding another layer of administrative burden and cost.”
“There is a lot to digest in this consultation – the devil will be in the detail,” he added.
The number of registered company insolvencies in November 2021 was 1,674, a jump of 88 per cent compared to the same period last year when 891 insolvencies were recorded, according to government data. The latest figure also marked the first time that the monthly number of insolvencies exceeded pre-pandemic levels since the start of coronavirus.