Monitoring Volume Individual Voluntary Arrangement and Protected Trust Deed Providers
Guidelines for the monitoring of volume individual voluntary arrangement (IVA) and protected trust deed (PTD) providers
Background
This guidance has been issued by the Insolvency Service to ensure consistency in monitoring volume IVA and PTD providers (Volume Providers). The definition of a Volume Provider, mutually agreed and adopted by the Recognised Professional Bodies (RPBs), lies outside of the guidance but has been appended for ease of reference.
The guidance is designed to assist the RPBs in achieving the Regulatory Objectives when discharging their regulatory functions in respect of authorising and regulating Insolvency Practitioners.
Each RPB, as part of its role as a regulator, monitors the Insolvency Practitioners that it authorises to ensure their compliance with the principles outlined in the insolvency law, rules and regulations, the Insolvency Code of Ethics (the Code) and Statements of Insolvency Practice (SIPs).
The RPBs authorise individuals who act as Insolvency Practitioners. However, information about the Volume Provider and its operation will be relevant in establishing whether the Insolvency Practitioner is a fit and proper person to act. The RPBs will expect an Insolvency Practitioner to provide information about the Volume Provider as part of the monitoring process.
The Insolvency Service expects RPBs to take a risk-based approach when monitoring Insolvency Practitioners and also to utilise appropriate risk assessment, taking into account the number of appointments taken alongside other, relevant information about the Insolvency Practitioner or the entity at which the Insolvency Practitioner operates.
RPBs should remain alert to emerging trends and risks, whilst exercising judgement and expertise to ensure they respond appropriately, and in a timely manner, to any concerns about Volume Providers, business models, and new developments in this sector.
The Insolvency Service would expect as a minimum for there to be annual monitoring visits to Insolvency Practitioners operating as or within a Volume Provider. Close monitoring should also take place where a Volume Provider is rapidly expanding or where there has been a material change to its business activities. The format and strategy for each visit should be determined on a risk-based approach. Where, in exceptional circumstances, a decision is made not to carry out an annual visit, the decision should be justified and recorded.
In this guidance, where the context permits, references to Insolvency Practitioners and/or Volume Providers may include staff acting on their behalf.
Risk factors to be considered
The Insolvency Practitioner will not necessarily have direct control over governance, development, or management of the Volume Provider. In this situation, RPBs should establish, understand, and document the contractual relationships between the entity and its Insolvency Practitioners, and review employment contracts or relevant terms of engagement.
Where the Volume Provider has associations and/or connections with businesses, either providing services directly to or associated with the IVA or PTD, such as re-mortgaging facilities or claims management services, the RPB should identify the organisational structure, understand and document the relationship between the businesses. Particular attention should be given to the way in which any work is referred between the businesses, any payments of commissions for work received or carried out, and whether expenses and disbursements are being appropriately classified and disclosed to creditors.
With many cases being processed, a Volume Provider is likely to have a high percentage of staff who do not hold relevant qualifications. RPBs need to assess whether there are sufficient and appropriately experienced staff to administer the cases to the standards required. RPBs are therefore expected to review and understand the processes and procedures in place to supervise and monitor the work of all staff and satisfy themselves that the oversight by the Insolvency Practitioner meets the required standard.
Key issues
Business Structure and Insolvency Practitioner case control
RPBs should have regard to the different business structures of Volume Providers. The high volume of cases means that each Insolvency Practitioner will be dealing with a much higher number of appointments than a traditional insolvency practice and may be an employee of the entity with no formal role in relation to its governance.
Nevertheless, the Insolvency Practitioner in their role as an advisor, nominee, supervisor or trustee remains responsible for all advice, proposals and IVAs or PTDs to which they are appointed. Accordingly, the Insolvency Practitioner should be able to demonstrate suitable controls and systems are in place to ensure that, irrespective of the structure of the practice, they are able fully to discharge their duties.
Advertising and marketing
The Insolvency Code of Ethics provides that Insolvency Practitioners are responsible for the quality, accuracy and legality of their own advertising and marketing as well as of those of any third parties referring work to them. Guidance on Monitoring Insolvency Practitioners: Advertisements, Marketing and Debt Advice further specifies expectations in relation to standards required of the Insolvency Practitioner, who should be able to demonstrate compliance with the guidance as well as Statements of Insolvency Practice 3.1 and 3.3. The RPB is expected to review Insolvency Practitioners’ adherence to the above as well as any steps taken to address any threats to the fundamental principles.
Use of work referrers
The Insolvency Practitioner should be able to demonstrate that sufficient due diligence has been carried out in relation to anyone from whom they receive referrals. Insolvency Practitioners should, where applicable, also ensure that any firms referring work to them are FCA authorised for debt counselling or are correctly applying any relevant exemption or exclusion. Insolvency Practitioners should periodically review contracts with their work referrers and evaluate their performance, particularly in relation to marketing activity and the quality of any advice, throughout the life of the engagement.
The Insolvency Practitioner should have appropriate retention policies, contracts, and service agreements in place to ensure the work referrer’s recordings and records can be accessed for the required period of time on request as needed by the Insolvency Practitioner or the RPBs.
Recording information and record retention
The Insolvency Practitioner should have procedures in place to ensure that any advice provided to a debtor, whether by the Insolvency Practitioner, employee, or any work referrer, is recorded accurately.
It is expected that there will be an audio recording of all oral communications with the debtor (other than face to face meetings, which shall be documented). It is also expected that each annual monitoring cycle will include a review of audio recordings of telephone calls, web chat transcripts, digital communications etc as these constitute an essential and critical part of case records, and as such, should be retained for the period of 6 years stipulated by regulation 13(5) of The Insolvency Practitioners Regulations 2005.
It is expected that the RPB will review the existing arrangements in relation to maintaining all case records. The Insolvency Practitioner must be able to demonstrate that all cases are administered in line with Statements of Insolvency Practice 3.1 and 3.3.
Acquisition of IVA / PTD books and the resulting impact on caseloads
The expectation is that sufficient notice is given to the RPB of the substantial acquisition of new cases.
Where a Volume Provider proposes to acquire, or has acquired, a substantial block of new cases, for example by purchasing an existing IVA/PTD book, the RPB should assess whether the Insolvency Practitioner has the necessary resources and experience to deal with the increased caseload. A risk-based assessment should be carried out and documented by the RPB to determine whether the Insolvency Practitioner is able to supervise the additional appointments to the required standard.
RPBs should specifically assess whether there are appropriate arrangements, such as IT systems, to deal with compatibility issues and review the appropriateness and authority sought for the charging of any variation fees relating to the acquisition.
Systems and controls
RPBs should consider the systems and controls in place within the entity. This will form a more significant part of the monitoring process than in a traditional insolvency practice. The conduct and strategy of each visit is for the RPB to determine based on its risk assessment of the Volume Provider.
Monitoring records should evidence that an adequate review of the relevant areas has been carried out. Where an area is not proposed to be tested during a visit, this should be recorded in the visit documentation.
Areas generally expected to be covered include:
Staff
- recruitment process and qualifications of all staff,
- level and standard of training provided - this could include obtaining copies of any training manuals available. Consideration should be given to the different training requirements for PTDs and IVAs (if applicable),
- basis of pay - if pay is based on commission or bonuses, what safeguards are in place to ensure the link does not compromise the provision of advice to the debtor,
- discussions with members of staff;
Appropriate advice and sourcing of work
- assessment of fairness, appropriateness and truthfulness of advertising, marketing materials and websites (whether those websites are the Insolvency Practitioner’s, the Volume Provider’s or a third party’s),
- listening to a sample of recorded calls between the Volume Provider and the debtor,
- if exceptional issues prevent an audio recording of telephone calls being made, a review of detailed written notes or transcripts of those calls,
- obtaining satisfactory evidence that the Insolvency Practitioner has considered any advice previously given to the debtor by third parties,
- consideration of any “script” used by the Volume Provider,
- consideration of any computer-based decision tree,
- consideration of the options that the Volume Provider offers to the debtor, and the debtor’s level of knowledge and understanding of each of these options,
- review of standard of letters issued to debtors at various stages of the process,
- processes for verification of information provided by the debtor,
- management information statistics kept by the Volume Provider and their use,
- the extent to which additional products are offered to debtors and the nature of those;
Work referrers
- review of any payments made to the work referrer and/or third-party work sources,
- review of the advertising and marketing material used by the work referrers,
- review of the periodic due diligence carried out by the Insolvency Practitioner on any work referrers engaged in relation to advertising, marketing material and websites,
- review of internal compliance monitoring of sources of work and/or work referrers to ensure quality and completeness of advice given to the debtor,
- review of whether the work referrer provides advice and a recommended solution to the individual as part of the service,
- consideration of processes used to ensure that the debtor has received appropriate and complete debt advice,
- review of a sample of advice calls between the debtor and the work referrer if recorded,
- review of the contract between the Volume Provider and the work referrer;
Decision making and any meeting of creditors
- consideration of the adequacy of the information provided to creditors by the Insolvency Practitioner,
- the system used to log proofs and proxies,
Handling of complaints
- consideration of the complaints policy of the Volume Provider,
- consideration of the number and nature of the complaints received by the Volume Provider in the past 12 months and how many of those have been satisfactorily resolved,
- the extent to which the Insolvency Practitioner is involved in or aware of the number and nature of complaints;
Supervision
- the cashiering function, including banking arrangements,
- identification and reporting of non-compliance,
- compliance with terms of the arrangement and any modifications or compliance with the terms of the trust,
- annual reporting procedures,
- review of expenses, costs and disbursements, any associated commissions through use of other businesses and appropriate disclosure and transparency in dealings with debtors and creditors,
- how inter-locking IVAs are dealt with,
- dealing with property/equity,
- payment of dividends,
- timely closure of cases – either through completion or failure,
- use of the Standard Financial Statement for IVAs and Common Financial Tool for PTDs to determine contribution amounts,
- how the Volume Provider deals with modifications and related fees. This includes the Volume Provider ensuring the debtor has agreed or rejected the modifications, and that the IVA remains viable,
- how the Insolvency Practitioner holds any trust monies including requirements to ringfence these in a separate account and comply with Statement of Insolvency Practice 11.
- consideration of how the Volume Provider deals with a PTD which has not completed in accordance with its terms, and specifically whether a discharge or a petition for the debtor’s sequestration is appropriate in the circumstances;
Estate Accounts
In all cases, the RPBs and the Insolvency Service expect the Insolvency Practitioner to have full oversight and control over estate accounts, and the Insolvency Practitioner must show adequate financial controls and protections for estate funds in compliance with Statement of Insolvency Practice 11.
It is expected that each annual monitoring cycle will include a detailed review of estate accounts, the procedures for safeguarding estate funds and access and authority for making payments. This should include, but is not limited to, the following matters:
- traceability of monies through any virtual or header account to ensure segregation from other monies,
- adequate protection of estate money; for example, checking that the monies in the estate account are not available for set-off, but are labelled and treated as trust monies and in no way used as collateral or leveraged to support other business activity within the entity,
- ensuring that all estate monies can be accounted for,
- satisfactory evidence of the reconciliation between any virtual estate account balances and the estate bank account statements,
- satisfactory access to and control of the estate accounts by relevant Insolvency Practitioners within the entity and adequacy of safeguards,
- procedures for payment of statutory fees in PTDs and their timeliness,
- procedures for ensuring remuneration is paid correctly and in accordance with the proposal/trust terms,
- procedures for making payments from the estate account, e.g., remuneration, disbursements, dividends, or any other expenses,
- the number and identity of signatories required and the relevant limits,
- a review of any separate distribution accounts,
- frequency of checks and audits of the estate accounts carried out by the Insolvency Practitioner or appropriate third parties.
Claims management companies and compensation
Debtors in IVAs or PTDs may be affected by claims for mis-selling of financial products that may result in compensation. RPBs should review procedures for dealing with any compensation.
On a risk-based approach, RPBs should review the contractual arrangements with any claims management companies used in the Volume Provider’s cases, reviewing a copy of the terms of engagement or contract. RPBs should be satisfied that the procedures adopted by the claims management company result in both the debtor and creditors being treated in a fair and reasonable manner, including the level of fees charged, and that any investigations are carried out promptly.
RPBs should understand and document whether there is any connection between the Insolvency Practitioner, the IVA/PTD Volume Provider and any claims management company, and in the case of any connections should ensure adequate disclosure and compliance with the Insolvency Code of Ethics.
Case samples
While the analysis of the business model, systems and controls is extremely important, case files should be examined to test whether those processes work in practice. The case sample size should be determined by, but not limited to:
- the number of cases,
- the risk profile of the Volume Provider,
- the extent of automation of systems and controls,
- the ratio of consumer to trading debtors,
- the proportion of proposals rejected and the failure rates, with particular consideration to failures in year 1 and 2.
As a minimum, the case sample selected by RPBs should cover the following:
- a sample of new cases to ensure current systems are being adhered to,
- a sample of older cases to ensure cases are progressing satisfactorily and that information contained within the annual reports is appropriate,
- a sample of failed IVAs/PTDs which do not achieve their purpose to assess whether they were viable and appropriate at the initial stage,
- a sample of low-income contribution IVAs/PTDs (contributions below £100 per month) to assess whether they were viable and appropriate at the initial stage,
- a sample of IVAs rejected by creditors following the issuing of the proposals, to understand reasons for the rejection including, among others, whether they were viable and appropriate at the initial stage,
- a sample of trust deeds advertised in the Register of Insolvencies that did not become protected,
- a sample of recently closed cases,
- a sample of open cases where a period of more than six months has elapsed since the debtor’s final payment, to assess the reasons for the case remaining open.
Where sampling or any other intelligence identifies common or recurring potential breaches or deficiencies (e.g., breach of a particular Statement of Insolvency Practice), RPBs should establish whether these are separate incidents or whether they are indicative of systemic failings.
Appendix - Definition of a Volume Provider
1) A Volume Provider is defined as an Insolvency Practitioner or an entity which has at any time within the previous 12 months been responsible for the administration of:
a) 1,000 or more cases in which one or more person(s) has acted as nominee in relation to an individual voluntary arrangement, and/or
b) 5,000 or more cases in which one or more person(s) has acted as supervisor in relation to an individual voluntary arrangement, and/or
c) 2,000 or more cases in which one or more person(s) has acted as trustee in relation to a trust deed (in Scotland) whether or not the trust deed is protected.
For the avoidance of doubt, if an Insolvency Practitioner or an entity meets any of the above thresholds then it shall be a Volume Provider for the next 12 months even if its caseload falls beneath the thresholds during those 12 months.
2) When monitoring an individual who acts as an Insolvency Practitioner, Recognised Professional Bodies may in their absolute discretion:
a) apply the “Guidelines for the monitoring of volume individual voluntary arrangement (IVA) and protected trust deed (PTD) providers”, whether or not the individual is or operates at a Volume Provider, and/or
b) disapply those guidelines if the total number of cases in which the individual acts as an Insolvency Practitioner does not meet any of the thresholds in sub-paragraphs 1, 1a, 1b, 1c, whether or not the individual operates at a Volume Provider.
Last updated 21 August 2023 + show all updates
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