IFA: Regulate advisers in unregulated sector, not more standards by imposing PII

HMRC’s consultation on Raising standards in the tax advice market: professional indemnity insurance and defining tax advice sets out proposals to impose professional indemnity insurance on those tax advisers who are not members of a professional body. Yet this is just masking the wider need to regulate all accountants and protect consumers, says Anne Davis, Director of Professional Standards at the Institute of Financial Advisors. Call for more understanding ‘PII can help to create better market incentives for poor performing advisers to improve standards’, states the consultation. However, we at the IFA remain unconvinced of its benefits, and it reinforces the likelihood that the current proposals will be seen as ‘tinkering around the edges’. In our response to the consultation we have made clear our concerns, and have also underlined our desire for HMRC to do more to understand the role of the professional bodies in raising (and maintaining) standards. There has been no evidence given in the consultation that providing a form of recourse to consumers, while useful to them, raises the standards of the tax adviser. Indeed, it might be assumed by some that PII cover could give rise to complacency. PII cover is beneficial only in the context of other regulatory arrangements. Benefits lack basis According to HMRC, the benefits of compulsory PI insurance include: immediately improved customer protection; taxpayers being given confidence to rely on advice obtained; a strong incentive for tax advisers to raise their standards; and a reduced likelihood that advisers promoting avoidance schemes would be able to obtain cover. However, we are not clear how most of these conclusions have been reached. No public protection Although the foreword to the consultation notes that ‘there is a minority of incompetent, unprofessional and malicious advisers whose activities harm their clients’, we assert that the wider public is also harmed, because the activities of that minority undermine public trust in the accountancy profession as a whole. The requirement of PI insurance among those incompetent, unprofessional and malicious advisers will do nothing to maintain or restore the trust of those who have suffered at their hands. Nor will it protect consumers from ongoing poor practice and bad advice – it merely offers a potential recourse for compensation from the PI insurance providers. Bigger picture sought When considering proportionality, according to the data in paragraph 21 of the consultation document, around 30% of the tax advice market are unaffiliated agents (tax agents not part of a professional body). It is thought that half of these may already hold PI insurance. It is difficult to imagine how the requirement for a minority of tax advisers to hold PI insurance in isolation might raise technical and ethical standards, or to see much benefit to a client whose tax adviser is not regulated by a professional body. A proportionate response can only be achieved by looking at the bigger picture – the regulation of accountants and the informed choice of consumers. Standard for Agents Among the other proposals for raising standards in the tax advice market is that of raising awareness of the HMRC Standard for Agents (although it is also suggested that some tax agents may not fall within the definition of a ‘tax adviser’ and vice versa). However, this presupposes that the HMRC Standard is effective and that there is a means of enforcing it. A review of the HMRC Standard would have to take place alongside the review of HMRC’s powers. But we believe that this process would result in a significant amount of duplication (i.e. regulatory overlap) between HMRC’s role and that of the professional bodies. In addition to the disproportionate costs that would arise, this would surely create a framework that is more complicated (and opaque) than it needs to be. Professional bodies review We also stress that HMRC must do more to understand the role of the professional bodies in raising (and maintaining) standards. We understand there is no fixed timeline for this work, although it is clear to us that such an understanding must be gained before HMRC’s project to raise standards in the tax advice market can credibly progress. An effective review of the work of the professional bodies will also identify areas in which reliance on (and understanding of) their existing regulatory frameworks could support other high priority policy areas, such as fighting economic crime. Regulate to raise standards Seeking to raise standards among tax practitioners will, if attempted in isolation, be a demanding task, and it will not meet the objective of protecting the public without excessive cost and complexity. The protection that comes from greater clarity for all consumers of accountancy services, and the ability of consumers to make an informed choice, is long overdue. In the interests of effective, proportionate and targeted regulation, we remain of the belief that the professional bodies are best placed to regulate accountants (including tax advisers), and so maintain the high technical and ethical standards of their members. The public interest is served by making clear to consumers of tax advice whether (and how) their adviser is regulated. To register for IFA’s upcoming webinars, email lindaw@ifa.org.uk and quote code IFAAT to be charged the IFA member rate of £99. Once payment has been received you will be sent registration details.