Corporate report

Monitoring Report on the Institute of Chartered Accountants of Scotland

Published 25 September 2020

Executive Summary

The Insolvency Service has overall responsibility on behalf of the Secretary of State for Business, Energy and Industrial Strategy for ensuring that the activities of the Recognised Professional Bodies that authorise and license insolvency practitioners are in line with regulatory objectives set out in Part 13 of the Insolvency Act 1986. Those objectives include having a system of regulating insolvency practitioners that secures fair treatment and ensures consistent outcomes, maximises returns to creditors, and protects and promotes the public interest. As part of our oversight activities, the Insolvency Service undertakes monitoring visits to the Recognised Professional Bodies.

This report presents the findings of a review by the Insolvency Service which took place during March and April 2020, to examine the processes adopted by the Institute of Chartered Accountants of Scotland (ICAS) when regulating its insolvency practitioners. This report includes information provided by ICAS prior to and following the visit, findings in relation to specific cases and recommendations.

1 Overview

1.1 ICAS is a RPB as defined under s391 Insolvency Act 1986, which authorises and regulates insolvency practitioners. At 1 January 2020, ICAS licensed 88 practitioners of which 68 were authorised to take insolvency appointments.

1.2 With effect from 1 August 2019, ICAS outsourced the onsite monitoring of insolvency practitioners to the Institute of Chartered Accountants in England & Wales (ICAEW). The visits are carried out by ICAEW staff with the findings reported to ICAS, at which point the ICAEW involvement ends. ICAS retains full responsibility for all post-visit matters (including visit outcomes and all regulatory action where appropriate). ICAS also retains responsibility for other regulatory matters, including licensing and the investigation of complaints against its insolvency practitioners.

1.3 The Insolvency Service’s previous monitoring visit to ICAS was in 2015 and a report was published. Since then, a review of the monitoring and regulation of insolvency practitioners by all the Recognised Professional Bodies was carried out, with findings detailed in a report published in 2018.

1.4 In advance of this visit, ICAS provided the following information:

• A list of all monitoring visits to insolvency practitioners since the beginning of 2018.
• A list of all monitoring visits to insolvency practitioners scheduled for 2020.
• A list of all referrals made following a monitoring visit to investigations since the beginning of 2018.
• Its current risk assessment for determining the timing and scope of monitoring visits.
• Details of the composition of the Authorisation Committee and the Investigation Committee.
• Minutes for all committee meetings for 2019.
• A list of all complaints received since the beginning of 2018.
• A list of all complaints closed since the beginning of 2018.

• A list of all authorised insolvency practitioners including:

  • Number of appointment and non-appointment taking practitioners.
  • Practitioners holding a partial licence.
  • Practitioners subject to a licence restriction.
  • Practitioners who ceased to be authorised in the last 12 months.
  • Applications for authorisation that were rejected during 2019.

1.5 From the above information, the Insolvency Service selected 15 monitoring and 15 complaint files to be reviewed. These cases were randomly selected by statisticians within the Insolvency Service to ensure the sample was representative. Details of the sampling were shared with ICAS. Due to restrictions in place arising from the COVID-19 pandemic, the review was carried out remotely.

1.6 The Insolvency Service observed the Authorisation Committee in April 2020 and both the Investigation Committee and Adjudication Committee in June 2020. Due to COVID-19, these meetings took place remotely. As onsite monitoring visits to insolvency practitioners are carried out on ICAS’s behalf by the ICAEW, no visit was observed by the Insolvency Service as part of this review. Visits to insolvency practitioners were observed as part of a recent review of the ICAEW’s monitoring processes, although not specifically to insolvency practitioners authorised by ICAS.

2. Overall findings

2.1 Overall, the Insolvency Service found that ICAS has appropriate processes in place when carrying out its regulatory functions. No significant issues were identified, however some minor recommendations for improvement are made in this report.

2.2 As the visit took place at the beginning of the COVID-19 pandemic, the Insolvency Service did not specifically review any new measures that ICAS had put in place, however observation of three committees showed that ICAS was adapting effectively to the challenges.

Complaints

2.3 ICAS undertakes a detailed review of complaints with information being sought directly from the insolvency practitioner in the majority of cases, in accordance with its published intimation policy. In one case, we considered that further enquiries should have been undertaken before the complaint was closed.

2.4 Whilst ICAS has an effective method of providing an independent review of complaints closed without a referral to the Investigation Committee, it is recommended that the record of the decisions made from these reviews is made clearer.

2.5 ICAS was progressing all complaints sampled in a timely manner.

Monitoring and authorisations

2.6 Prior to outsourcing its onsite monitoring of insolvency practitioners to the ICAEW, ICAS had appropriate processes in place for conducting these visits. It was also evident that ICAS adopted a consistent approach for concluding monitoring visits.

2.7 Since the outsourcing arrangements were implemented, ICAS has retained responsibility for determining the outcome of visits and taking forward any regulatory action in appropriate cases, and this arrangement is generally working effectively. During the Insolvency Service’s observation of the Authorisation Committee meeting in April 2020, it was noted that whilst the covering agenda paper for the insolvency practitioner’s monitoring visit report had referenced the key follow up actions (including a follow up visit), it did not expressly draw the committee’s attention to a specific matter arising on one of the individual case files. Whilst the full monitoring visit report was provided to the committee, the inclusion of this specific matter in the covering agenda paper might have prompted a discussion on the appropriate course of action during the meeting.

2.8 ICAS has systems in place for monitoring insurance arrangements for insolvency practitioners, although it should document its policy for where a practitioner is in recurring default.

2.9 All regulatory notifications are issued to the Insolvency Service within appropriate timescales.

Detailed Findings

3. Complaints handling

3.1 ICAS received 10 complaints against insolvency practitioners in 2018 and 13 in 2019. These complaints are summarised in the table below:

Table 1 - Complaints received in 2018 and 2019

Complaint Outcome	Closed by Review Panel– no finding	Closed by Investigation Committee – no finding	Closed by Investigation Committee – disciplinary outcome	Ongoing
No of complaints	13	3	1	6

Investigation of complaints

3.2 Upon receipt of a complaint, ICAS will conduct preliminary enquiries to establish whether or not the complaint should be referred to the Investigation Committee. As part of those enquiries, ICAS will, in the majority of cases, put the allegations made in the complaint to the insolvency practitioner and seek any appropriate evidence. This approach is set out in a published Intimation Policy, which explains when ICAS will seek input from insolvency practitioners.

3.3 Although the preliminary enquiries in the cases we reviewed were generally thorough, in an isolated case ICAS only carried out the enquiries on the specific matter that had been identified in the email from the Complaints Gateway referring the complaint to ICAS, namely an apparent breakdown in communication between the insolvency practitioner and the complainant. While the complainant’s original correspondence with the Complaints Gateway also raised another concern over the insolvency practitioner’s apparent retention of a proportion of a repayment received from a bank, the Case Officer did not seek input from the insolvency practitioner on the point, due to it not having been referenced in the referral from the Complaints Gateway. Whilst the Gateway’s role is to assess whether a complaint is suitable for further enquiry by the Recognised Professional Body concerned and will provide Recognised Professional Bodies with a specific reason for referring the complaint, this does not restrict the Recognised Professional Body from making enquiries into additional matters raised in the complaint that were not referenced by the Gateway.

3.4 Following the conclusion of the preliminary enquiries, if the Case Officer assigned to the complaint determines that there are insufficient grounds for the complaint to be referred to the Investigation Committee, the case is passed to a Review Panel to ensure that closure is appropriate. The Review Panel is a sub-committee of the Investigation Committee and is comprised of three members, and to ensure sufficient independence, two of which are neither insolvency practitioners nor Chartered Accountants (lay members).

3.5 In eight closed complaints we reviewed, the reasons for closure appeared appropriate based on the evidence obtained. In one file, however, the complaint was closed without consideration being given to whether the insolvency practitioner had complied with their requirements under Statement of Insolvency Practice 3.1. In this case, whilst internal advice was sought from ICAS’s Practice Support Specialist in insolvency matters, no further enquiries were made of the insolvency practitioner following their response to preliminary enquiries and specifically in respect of the requirements of Statement of Insolvency Practice 3.1 where it appeared appropriate to do so. Instead, the advice from the Practice Support Specialist was to consider whether the insolvency practitioner had met their legislative obligations, with the conclusion being they had and therefore no further enquiries were made.

Review Panel

3.6 The Review Panel’s role is to review whether the Case Officer’s decision to close a complaint is appropriate and to ensure that the outcome of an investigation is not dependent on one person’s view.

3.7 Before the complaint is passed to the Review Panel, the file is subject to a peer review by another Case Officer. The peer reviewer will either agree with the original decision to close the case or refer the complaint back to the Case Officer with recommendations.

3.8 The Review Panel will consider the following factors before agreeing a complaint should be closed:

• Whether the Case Officer undertook a thorough investigation of the issues and correctly identified and addressed the relevant "heads" of complaint.
• Whether other issues require consideration.
• Whether any additional enquiries should be carried out.
• Whether both the insolvency practitioner and the complainant were given a reasonable opportunity to respond to the issues raised.
• Whether the complaint was investigated within a reasonable time period, having regard to the complexity of the issues raised and the level of co-operation from both the insolvency practitioner and the complainant.
• Whether the complaint was conducted in a professional manner.

3.9 If any member of the Review Panel disagrees with the decision to close the complaint, it can either refer the matter back to the Case Officer to undertake additional enquiries or it can refer the complaint to the Investigation Committee.

3.10 Whilst the above factors are viewed as appropriate for this type of review, the template form for the record of decision made by the Review Panel does not replicate this list of factors. Instead, the focus is on procedural matters and how the complaint has been handled by the Case Officer rather than considering the substance of the complaint and evidence obtained to support the closure decision. It was therefore not clear from the files reviewed to what extent the Review Panel based its decision to uphold the closure of the complaint on evidence to support the matters investigated.

Progression of complaints

3.11 It was evident from the files reviewed that ICAS had progressed all those complaints in a timely manner and in line with its own processes with no delays in progression being identified.

Investigation Committee

3.12 It was evident from observing the Investigation Committee, that it maintains a robust oversight of the progression of all complaints. In particular, the committee receives reports on complaints that are over 12 months old, with the Case Officer being asked to provide reasons for duration of the complaint. The focus of the committee is whether the duration of the complaint can be justified, and whether any learning points need to be actioned.

Recommendations

• ICAS should amend the record of decision template of the Review Panel so it explains the full basis for the closure decision.
• ICAS should ensure that following receipt of a complaint, it identifies all appropriate matters for conducting preliminary enquiries and does not restrict these enquiries to the specific matters referred by the Complaints Gateway.
• ICAS should ensure that following an insolvency practitioner’s response to preliminary enquiries, consideration should be given to whether all regulatory requirements have been met, in addition to legislative requirements.

4. Monitoring of insolvency practitioners

4.1 In August 2019, ICAS entered into a formal agreement to subcontract its onsite monitoring visits to the ICAEW. ICAS continues to be responsible for the risk assessment and timing of monitoring visits, which are carried out by the ICAEW. The first monitoring visit under this arrangement took place in August 2019.

4.2 Following the completion of the visit, the ICAEW reports its finding to ICAS, which is responsible for determining the outcome of the visit, and where relevant, presenting to the Authorisation Committee for consideration of any follow-up, or regulatory action, to be taken.

4.3 During 2018, ICAS carried out monitoring visits to 22 insolvency practitioners under its existing risk assessment process.ICAS was impacted by staff departures in late 2018 and early 2019. Rather than replacing these members of staff, ICAS took the decision to approach the ICAEW with a view to outsourcing monitoring activities. Due to the likely timeframe to reach a suitable agreement, ICAS risk assessed the monitoring visits scheduled for 2019 and concluded that one immediate visit was necessary, which it carried out in January 2019.

Risk Assessment

4.4 Prior to 2019, ICAS visited each insolvency practitioner every three years or, in some cases more frequently, depending on risk assessments or the outcome of a previous monitoring visit. From the beginning of 2019, ICAS will ensure that insolvency practitioners receive a monitoring visit at least once every six years, although in practice most visits will be more frequent than this as determined by risk assessments. In respect of any volume Individual Voluntary Arrangement or Protected Trust Deed providers, ICAS will ensure these insolvency practitioners are visited at least annually.

4.5 The schedule for monitoring visits is reviewed annually by ICAS. This process entails a desktop review of the outcome from the previous monitoring visit, information from the insolvency practitioner’s annual renewal application and any other relevant information including the number of complaints, intelligence and any previous regulatory outcomes. ICAS also considers a number of risk indicators, including the type and size of the case portfolio, staff changes within a practice and rapid expansion. The risk-based approach determines the timing and frequency of visits. Once the schedule of monitoring visits for the year has been determined, it is provided to the ICAEW to conduct the visits.

Monitoring visit outcomes

4.6 Outcomes following monitoring visits are determined by the monitoring team within ICAS, with regards the visit grade and, where relevant, presenting to the Authorisation Committee for consideration of any follow-up, or regulatory action, to be taken.

4.7 Where the visit outcome is determined as being satisfactory by ICAS, the visit is closed under delegated powers given by the Authorisation Committee. That being said, the Authorisation Committee took the decision in 2019 that all visits conducted by ICAEW, irrespective of grade, would be considered by either the full committee, or a Nominated Committee Member, to ensure an additional level of oversight over these visits.

4.8 Between January 2018 and January 2019, ICAS conducted a monitoring visit to 22 insolvency practitioners and ICAEW carried out visits to nine insolvency practitioners on ICAS’s behalf. The outcomes are summarised below:

Table 2 - Outcome of monitoring visits undertaken in 2018 and 2019

Visit Outcome	Satisfactory	Follow-up monitoring visit required	Regulatory action required	Visit yet to be concluded
No of IPs	21	5	2	5

4.9 There was evidence on all files reviewed that the case selection for the monitoring visit would sample at least one of each insolvency case type.

4.10 It was evident across all the monitoring files considered that a thorough approach was taken on visits by ICAS. Queries raised were detailed and there was evidence of frequent challenges in respect of fees. In one case, the insolvency practitioner had provided a fee estimate which had yet to be approved by creditors and ICAS challenged the quantum of the estimate, which was subsequently reduced by the insolvency practitioner.

4.11 Where a number of issues have been identified following a monitoring visit [that are not determined as being appropriate for regulatory action], the Authorisation Committee will order a follow-up visit to the insolvency practitioner at their expense. We found the outcome of monitoring visits and those insolvency practitioners requiring a follow-up visit as being consistent across the files reviewed.

4.12 Where more serious concerns have been identified, the Authorisation Committee will consider whether any regulatory action is appropriate. The Authorisation Committee can take action in respect of the insolvency practitioner’s licence, issue a regulatory penalty or refer matters to the Investigation Committee to open an investigation. The Authorisation Committee is provided with a copy of the relevant monitoring report and also a summary of matters to be brought to the attention of the committee.

4.13 We found that this process was generally consistent on the files reviewed. In one case, however, the Authorisation Committee was not invited in a covering agenda paper produced by ICAS to consider a specific matter arising on an individual case. The conclusion in the supporting papers provided to the Committee was that all outstanding matters were to be dealt with on a follow-up visit and the Committee approved this approach, however the covering agenda paper did not prompt a discussion on this specific matter.

Recommendation

• ICAS should ensure that when submitting the monitoring report to the Authorisation Committee, the covering papers should draw the committee’s attention to findings on individual cases noted in the visit reports, as well as consideration of the overall outcome to the visit.

5. Authorisation of insolvency practitioners

New applications for authorisation

5.1 Upon receipt of new application, an electronic file is set up and the application is reviewed to confirm all information has been received. The application form and any related attachments are forwarded to the Director of Regulatory Monitoring and Authorisations, or the Executive Director of Regulation, for review. If no issues are identified, the application is approved under delegated powers. Where issues or concerns are noted, the application is subject to an additional review by either the full Authorisation Committee or a nominated committee member. Decisions made by ICAS staff are also subject to a sample review by a sub-committee of the Authorisation Committee at least once per year.

Monitoring of insolvency practitioner bonds

5.2 Upon any applications for a new licence, or renewal of an existing licence, ICAS takes steps to ensure that the insolvency practitioner has appropriate insurance cover in place on all their cases. This cover is known as the general penalty sum bond or enabling bond. Enabling Bonds are submitted and stored electronically. They are renewed in three groups across the year in February, September, and December with appropriate monitoring of receipt in place.

5.3 In addition to the above, practitioners are also required to obtain cover on each individual case up to the estimated amount of the total assets and report this information by the 20th of each month. These monthly reports are known as cover schedules. In order to monitor monthly cover schedules, ICAS maintains a spreadsheet and will follow-up any late submissions by the 25th of each month. Whilst late submissions are infrequent and remedied promptly, there was, at the time of the Insolvency Service review, one insolvency practitioner with an outstanding return. This was an isolated case, and the return has since been received. Whilst ICAS has a procedure to deal with this, there is no documentation of the procedure in place to deal with instances of an insolvency practitioner being in recurring default.

Recommendation

• ICAS should ensure that it documents its policy to deal with instances of an insolvency practitioner being in recurring default with regard to the submission of their monthly cover schedules.

Annex 1: Recommendations

The following recommendations are made for consideration by ICAS:

Complaints handling

• ICAS should amend the record of decision template of the Review Panel so it explains the full basis for the closure decision.
• ICAS should ensure that following receipt of a complaint, it identifies all appropriate matters for conducting preliminary enquiries and does not restrict these enquiries to the specific matters referred by the Complaints Gateway.
• ICAS should ensure that following an insolvency practitioner’s response to preliminary enquiries, consideration should be given to whether all regulatory requirements have been met, in addition to legislative requirements.

Monitoring of insolvency practitioners

• ICAS should ensure that when submitting the monitoring report to the Authorisation Committee, the covering papers should draw the committee’s attention to findings on individual cases as well as consideration of the overall outcome to the visit.

Authorisation of insolvency practitioners

• ICAS should ensure that it documents its policy to deal with instances of an insolvency practitioner being in recurring default with regard to the submission of their monthly cover schedules.

Annex 2: ICAS Response to Recommendations

Recommendation

ICAS should amend the record of decision template of the Review Panel so it explains the full basis for the closure decision.

ICAS Response

ICAS has reviewed the form completed by the Review Panel and expects to make changes imminently to satisfy the aim of the recommendation.

Recommendation

ICAS should ensure that following receipt of a complaint, it identifies all appropriate matters for conducting preliminary enquiries and does not restrict these enquiries to the specific matters referred by the Complaints Gateway.

ICAS Response

As regards the case in question, ICAS wishes to highlight that the Case Officer did contact the complainant at the outset to ask them to confirm whether they had concerns beyond the communication breakdown.

Notwithstanding, it is now clear to ICAS that when a complaint is referred by the Complaints Gateway, the statement of concern(s) in the referral letter should not be interpreted to mean that other concerns have been considered and disregarded. We will respond to complainants accordingly.

Recommendation

ICAS should ensure that following an insolvency practitioner’s response to preliminary enquiries, consideration should be given to whether all regulatory requirements have been met, in addition to legislative requirements.

ICAS Response

While ICAS considers that it already adequately assesses the responses provided by all parties in a complaint, we will take on board the Insolvency Service’s comments on the case file in question.

Recommendation

ICAS should ensure that when submitting the monitoring report to the Authorisation Committee, the covering papers should draw the committee’s attention to findings on individual cases as well as consideration of the overall outcome to the visit.

ICAS Response

ICAS Authorisation Committee members are recruited for their skills, knowledge and values. It is a requirement that all Committee members prepare for meetings, including the background reading of comprehensive inspection reports and other papers. All agendas are electronic and to assist the Committee’s consideration agenda cover papers are included for each item. These cover papers are supplementary to the main reports and are not intended to address every point for consideration (that is, it is not intended to be an executive summary and Committee members are expected to be familiar with the visit reports, and any matters arising).

Nevertheless, we will consider, in discussion with the Committee, whether we can make further improvements to the Committee papers in order to support their discussions. In addition, we would add: -

1. The inclusion in the cover note does not immediately guarantee that it will be discussed.

2. The fact that something is not discussed during a meeting does not mean that it has not been considered by the Committee.

Recommendation

ICAS should ensure that it documents its policy to deal with instances of an insolvency practitioner being in recurring default with regard to the submission of their monthly cover schedules.

ICAS Response

ICAS considers that it already has such a procedure but notes that the consequences for an insolvency practitioner in recurring default could be documented more clearly.

Where an insolvency practitioner has not submitted the return within five days of the 20th deadline, they would be contacted. Whilst this is rare, where insolvency practitioners are contacted, they have responded within a timely manner.

If there are further significant delays and/or returns are not received, there would be consideration by the Authorisation Committee and likely referral to Investigations for potential regulatory/disciplinary action. ICAS notes that this is extremely rare and there have been no recent instances.