The bankruptcy regulator, AFSA, has announced a new approach to its regulation of the 200 trustees in bankruptcy in Australia, focusing more on a trustee firm’s systems and controls and how or whether they serve to allow the trustee to meet the various legal and professional requirements.
This more streamlined approach, coupled with the insolvency reforms coming in soon, may allow ASIC to be relieved of some of the regulatory burden it has, and thereby limit the money it says it needs to spend on supervising its 6-700 liquidators.
AFSA’s regulatory approach
Details of AFSA’s general approach to regulation are found in IGPS 1 and other guidance. IGPS 1 refers to AFSA’s reliance on the well-known “compliance pyramid”, saying that AFSA is flexible in its approach to regulation of trustees, depending on the continuum of attitudes to compliance that are encountered. New approaches are continuously being explored to minimise regulatory burden and improve the efficiency of its processes.
Consistent with that, AFSA new more refined approach, reported word for word here, is to ask a trustee for documentary evidence of the firm’s systems and controls rather than quiz the trustee on what systems and controls exist and how they are applied. These would include policies, procedures and checklists but also more sophisticated computer based assistance, in line with AFSA’s rapid progress towards that option for reporting and payments.
AFSA says it expects that this new approach will reduce the time taken for trustees to respond to its queries and it will give AFSA better insight into a trustee’s compliance processes. AFSA will review this documentation and then provide feedback to trustees on any areas of concern.
A joint regulatory approach?
This approach lends itself to a broader assessment of how a practitioner’s firm operates, in both its personal insolvency and corporate insolvency matters. Many trustees are also company liquidators, regulated separately by ASIC.
There is good reason for AFSA and ASIC to share information and resources in their regulation.
Many of the standards relevant to an accounting and insolvency firm – listed below – are generic: the ARITA Code and APES 330, and standards for quality control, compliance, risk and complaints management. An insolvency firm meeting those standards in its personal insolvency area, would hardly not meet them in its corporate insolvency section. Often staff work in both in any event.
This approach will be assisted by the Insolvency Law Reform Act 2016, under which the regulators – AFSA and ASIC – will be able to more readily share information.
For example, under new s 12(4) of the Bankruptcy Act, the Inspector-General will be permitted to provide information to ASIC “if the Inspector-General is satisfied that the information will enable or assist [ASIC] to exercise any of its powers or perform any of its functions”. While there are many more liquidators than trustees, many trustees are also liquidators, and AFSA’s monitoring of the compliance and ‘gatekeeper’ culture within these firms would assist ASIC. This would allow ASIC to reduce its overall regulatory expenditure.
AFSA already acknowledges the benefit of a joint approach. IGPS 1 refers to AFSA working cooperatively with trustees “using supportive regulatory strategies” which include AFSA working collaboratively with ASIC, as its co-regulator of the insolvency profession and jointly developing standards with ASIC.
Other laws and arrangements assisting this joint approach are:
- the MOU between ASIC and AFSA of September 2014, which refers to many joint initiatives as being desirable;
- The obligation of officials of both agencies to ”work cooperatively with [each other] to achieve common objectives, where practicable”, under ss 5 and 17 of the Public Governance, Performance and Accountability Act 2013. This is a commitment AFSA gives in its IGPS 1; and
- the ILRA itself also requires the two agencies to co-operate with each other – s 10-5.
With the new law starting in 1 March 2017, we should expect to see evidence of this ASIC-AFSA co-operation very soon.
Relevant standards are as follows:
- ARITA Code
- APES 330 Insolvency Services, which is similar to the ARITA Code;
- APES 320 Quality Control for Firms;
- APES 110 Code of Ethics for Professional Accountants
- AS ISO 19600:2015 – Compliance Management Systems;
- AS/NZS ISO 31000:2009, Risk management – Principles and guidelines;
- AS ISO 10002-2006 Customer satisfaction – Guidelines for complaints handling in organizations. See also AFSA’s IGPS10: Complaint handling process for complaints against bankruptcy trustees and debt agreement administrators.