Principles of Regulation of Insolvency Practitioners – an international standard

The rather opaque International Association of Insolvency Regulators (IAIR) has issued a public document, the Principles of Regulation of Insolvency Practitioners (IPs), said to have been the subject of internal discussion and negotiation over the last two years.  In so far as both AFSA and ASIC are members of IAIR, it will be interesting to see how they and the government respond to the application of these principles in Australia.

The purpose of the Principles is to provide guidance on the regulatory regimes governing IPs. The Principles apply to all aspects of the training, qualification, licensing, professional ethics, remuneration, supervision, and accountability of IPs.

IAIR has been around since 1999. It is an international body of government insolvency regulators that says it brings together the collective experiences and expertise of its members from jurisdictions around the world. It includes ASIC and AFSA. Australia’s position was represented largely correctly, although the paper is set at 2016, before Australia’s regulatory reforms of 2017.

As the Principles state, the regulatory regime for insolvency practitioners represents a choice between state-regulation and self-regulation of the profession, with the choice not mutually exclusive.

The Principles state the balancing of the costs and benefits of state and self-regulation, with systems involving more self-regulation being more likely, in particular, to reduce compliance costs by capitalising on greater levels of trust between the regulators and the profession, and to internalise to the profession the direct costs of the exercise of regulatory authority. The question of the costs of regulation in Australia is a significant issue.

At the same time, however, greater self-regulation would, the Principles say, create a tendency for the system to be more partial to the profession, to be less open to external scrutiny and accountability, and more likely to err towards the adoption of lax standards. In other current contexts, this might be termed ‘regulatory capture’.

Australian comments

The whole set of Principles bears reading but some particular points are these, expressed in Australian terms.

They are useful both in indicating that IPs generally have similar roles and responsibilities around the world, and that Australia’s two regulators adopt approaches not that dissimilar to other comparable jurisdictions. But different ways to regulate do exist. England, and potentially New Zealand, adopt a co-regulatory model with the professional bodies playing a major part in regulation of the conduct of their members.  By contrast, Australia accords less responsibility to the industry body, ARITA, and to the professional accounting and legal bodies, with the major responsibility resting with AFSA and ASIC.

The Principles are useful in showing what is or is not happening in Australia.

Currency of standards

As the Principles at [3.2] say, there is need for ‘updating of the regime timeously in response to changing circumstances’. ARITA and APESB have adopted the ‘periodical … once every five years’ approach, which may go to the high quality of their standards, but it has meant that these have not responded to the major regulatory reforms that commenced in Australia in March 2017.  Other approaches are to review ‘on an ongoing basis … through the functioning of a standing committee with wide stakeholder membership …’.

Regulator oversight of private professional bodies?

The Principles state that the regulatory bodies – AFSA and ASIC – should be required to ensure that any non-state bodies – ARITA, CAANZ, CPA etc – comply with their own regulatory responsibilities, and ‘to report regularly on the supervisory and other activities they have undertaken’.  This is not part of the Australian system, unlike the UK and potentially New Zealand, with the industry bodies answerable only to their members as to how those members are regulated. The processes by which members are regulated and the extent to which procedural fairness and transparency is provided remains within the purview of those bodies. That does not however preclude judicial review of the exercise of their authority.

Information and data

Importantly, the Principles state [5.4] that the regulatory regime should ensure collection and public dissemination of aggregated data about its performance, this being ‘key to meeting the fundamental objective of maintaining public confidence’.

The Principles go on to say that the data should include ‘the number of cases, in aggregate, handled by persons authorised by the authorising bodies; the amount of value at issue, realised, and distributed in different types of insolvency processes; the range of fees charged and expenses incurred by authorised persons in different types of insolvency processes; the nature and level of supervisory activities by authorising bodies including on-site visits; the number of complaints and the types and frequency of the outcomes of these complaints; etc’.

Only AFSA goes some way towards meeting that standard.  The idea of an insolvency body, an Australian Insolvency Practitioners Authority (AIPA), recommended back in 2010, with responsibility for ‘gathering, collating and analysing data on a range of corporate and personal insolvency matters’, being publicly available for no fee, has never been accepted. Australia continues to pursue insolvency law reform in the dark.

Australia’s response

The regulatory regime introduced in Australia in March 2017 is novel, from a professional regulation and administrative law viewpoint.  Academic research is now being undertaken.  This might usefully look at the processes according natural justice to the practitioner – the right to an open hearing, disclosure of actions taken, published guidance by ARITA and the professional bodies as to how they are applying the new law. As to that, see Bodies everywhere — the role of professional bodies in regulating insolvency practitioners [2018] INSLB 94.

The Principles are a useful prompt for close focus on these issues in Australia. It will be interesting to see the responses of AFSA and ASIC, and others.

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