UK insolvency firms to face formal regulation

Insolvency firms face being formally regulated for the first time as ministers seek to establish a new watchdog within the Insolvency Service, Sky News has reported. The news comes after the collapse of BHS and Carillion drew attention to the conduct of company directors and auditors. Following the collapse a consultation was launched to create a new independent regulator in the Insolvency Service. Sky said that the announcement from Whitehall is expected nearly two years after the consultation and that the Department for Business and Trade's Insolvency Service will introduce measures that will allow both businesses and people to be sanctioned for misbehaviour. An industry executive told Sky that the aim of the reforms is “to close a regulatory gap and bring insolvency firms in line with the rules governing providers of audit and legal services”. So far, providers of insolvency services have been regulated by a quartet of recognised professional bodies (RPB), which include the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales (ICAEW). However, the Insolvency Service issued a formal reprimand to the ICAEW for the first time in June for failing to supervise a person who was subject to professional limitations. Sky News also stated that the scope of the new rules governing firms was unclear on Saturday (9 September), but a source added that the current quartet of RPBs would be responsible for implementing them. The government was also planning to create a public register for all individuals and firms offering insolvency services, and establish "a system of compensation and redress amendments to the current arrangements for insolvency practitioners to hold security (bonding) to cover losses in the event of fraud or dishonesty”. It is unclear if these reforms would be included in the package.