Regulation vs Compliance

Achieving high standards for the insolvency profession.

The Insolvency Act 1986 (IA 1986) introduced the concept of regulation for the insolvency profession. Insolvency practitioners were seen by many as members of a mysterious profession, answerable to nobody and making incomprehensible decisions and regulation was seen as a way of introducing transparency and confidence in the work carried out by insolvency practitioners. Insolvency practitioners have accordingly since 1986 been regulated by recognised professional bodies (RPBs), the licensing authorities for insolvency practitioners.

Regulation, compliance and the difference between them.

For practical purposes insolvency regulation means the formal review by an RPB of the work carried out by an office holding insolvency practitioner to establish whether it is of a sufficient standard for the RPB to renew the insolvency practitioner’s practising licence. Regulation that is itself of a high standard is extremely important so that stakeholders in the insolvency process can have confidence in the insolvency practitioners with whom they come into contact.

Compliance for an office holding insolvency practitioner means doing a good job that will achieve regulation and also minimise the risk of complaints and legal action against the insolvency practitioner. Doing a good job includes compliance with statute and both the Insolvency Code of Ethics and SIP1 expect insolvency practitioners to provide competent professional service. Providing competent professional service is very widely defined.

A breach of compliance could lead to legal action against the officeholding insolvency practitioner that would be outside the regulatory remit of the RPBs.

There is a substantial overlap between regulation, frequently and incorrectly seen as little more than checking details and filing documents on time, and compliance but they are not the same. Insolvency practitioners should be aware of the difference between regulation and compliance in order to achieve the best outcome for their practice and the difference between regulation and compliance and how this might affect an office holding insolvency practitioner is, oddly, best illustrated using anti money laundering legislation.

Anti money laundering.

 The Proceeds of Crime Act 2002 (POCA 2002) introduced the concept of money laundering offences. Those found guilty of money laundering offences (breaches of compliance) face substantial fines and possibly even imprisonment. Many people including insolvency practitioners are subject to the anti money laundering legislation. Since 2002 many have been accused of money laundering offences and have been taken to court and so far the insolvency profession has not been involved in any of these breaches of compliance. Those found guilty of breaches of compliance with anti money laundering legislation and who have been fined or imprisoned have made headline news. Those charged with a money laundering offence who have had to take time from work, instruct and pay solicitors to defend their case and who were ultimately found not guilty do not make headline news but the profitability of their businesses will have been affected by the legal action.

The regulation of anti money laundering compliance was not introduced until 26 June 2017 when the Money Laundering Terrorist Financing and Transfer of Funds Regulation 2017 (MLR 2017) came into force. A breach of compliance with POCA 2002 could have resulted in a fine or imprisonment from 2002 even though it only became a regulatory matter in 2017.

Since 26 June 2017 the RPBs have reviewed compliance with anti money laundering legislation as part of their regulatory procedures. A good regulatory report, important though this is, is not given in POCA 2002 as a defence to a money laundering offence. The National Crime Agency’s (NCA) decision whether to bring action against an insolvency practitioner for a breach of compliance with the anti money laundering legislation is unlikely to be influenced by the RBP’s regulatory report.

Achieving compliance for a successful future and to improve regulation.

Regulation is thus the vital review of the work carried out by the insolvency practitioner to establish whether the work is of a sufficient standard so that the RPB will renew the insolvency practitioner’s practising licence – without a practising licence the insolvency practitioner will be unable to take appointments. Compliance is more than this, it is doing a good job that will not only achieve regulation but also minimise the risk of complaints and legal action.

It seems that many of the pre 1986 misunderstandings about insolvency practitioners and their work that were to have been resolved by the regulation of the insolvency profession have been carried forward to today. Compliance, when insolvency practitioners and their teams carry out a good job as defined by the Insolvency Code of Ethics and SIP 1, is seen by many as a better way to improve the reputation of the insolvency profession than regulation, however strict this may be.

RMCSC’s independent insolvency compliance reviews include regulatory matters, filing documents on time, giving statutory notice and ticking off checklists, as well as more complex issues of case administration that are vital to achieve a high standard of compliance. RMCSC also carries out internal compliance reviews that are solely for the attention of the insolvency practitioner thus enabling an office holding insolvency practitioner to become aware of shortfalls and make changes to systems before the RPB carries out a monitoring visit. This is particularly useful now after 9 months of pandemic that have resulted in major changes to systems and work procedures and all RMCSC’s compliance reviews may of course be carried out remotely.

Please contact  Caroline Clark on caroline.clark@rmcsc.co.uk or 07854 967976 for more information about RMCSC’s insolvency compliance reviews and anti money laundering Reg 21 audits or go to RMCSC’s website at www.rmcsc.co.uk.