Inspection and regulatory update 2021: Managing remote working, training and risk

David Holland, Chief Inspector

Those of you with a fear of missing out… did unfortunately miss out on a fantastic IPA Annual Conference day on 28 April. My own 50-minute talk was as tightly packed as a holiday suitcase which is trying to cover every eventuality of a country’s risk rating changing whilst you are away. It was overambitious to try and summarise a manic year for insolvency guidance and legislation in such a short timeframe.

I will have disappointed those expecting a detailed update on the return of HMRC as preferential creditor from 1 December 2020 and the impact on CVAs, and equally those expecting time to cover each of the 32 Dear IPs  issued since the start of lockdown. My aim was to elaborate on what has been a significant year of change in terms of both how the profession works and the changing expectations.

Compliance and regulation generally work by setting standards and then looking backwards. My talk and preparing this article has highlighted the need to spend more time looking forward, planning, thinking and being objective and I’ll try and cover these points in this article.   

Does working from home really work?

I posed the question “Does working from home really work?” during my presentation in terms of control of cases,  case progression and the perennial key to compliance which is being able to clearly record decisions in accordance with Regulation 13.

During my talk I highlighted that compliance needs to be efficient, proportionate and show a high quality service at a cost to the recipient which is fair and reasonable. This is difficult as the profession has had to quickly adapt from working in a controlled and supported office environment to working from home. It is undoubtedly more difficult for inexperienced staff to be aware of compliance pitfalls and prioritise work accordingly.

When working on appointments, all staff should be aware of where the serious regulatory pitfalls are. A good starting point is the Common Sanctions Guidance and legislation, but this is an over simplification as insolvency covers a huge array of legislation which may be industry specific. When staff are faced with a large compliance manual, do they know why they are being asked the question, do they understand the importance of the question,  can they easily find the answer? And importantly, do they have the confidence to ask a question?  

A compliance checklist is not an exam with a series of one-mark ‘Yes/No’ questions, some questions carry a heavy sanction or worse. If staff are asked the Yes/No question of “Have you bonded?”, they need to be very confident in their answer. They need to know that under S390, failure to have security in place means that, under S389, the IP is not qualified to act and is liable to imprisonment, a fine or both.  

To address this, you should review if your compliance checklists have easy reference points and hyperlinks to assist staff in building knowledge. I have tried to assist with this article, having underlined key reference points for further reading and general education points.   

Compliance should be regularly tested to avoid embarrassing incidents being highlighted via complaints or routine monitoring. Whilst the IPA has clear Regulatory Objectives , the inspectors are allowed to deal with the vast majority of minor findings using discretion or by way of an advisory notice, and the vast majority of visits result in just minor recommendations. However, it is important that all staff are aware that very serious or repeated minor compliance breaches can lead to public sanctions. The best insurance against this is investing time in training and knowing when you are operating in a high risk area.

The latest Insolvency Statistics show in March 2021 the overall number of registered company insolvencies in March 2021 was 20% lower than in the same month in the previous year, and 37% lower than in March 2019.

At the start of the Covid pandemic, I was not expecting that the support measures would be in place for such a long period and the affect this would have on the insolvency industry. We are aware of the pressures this puts on all IPA members, and if members need help or guidance, they should contact the IPA. Further details are contained in the IPA Vulnerable IP Policy.

Furloughing insolvency staff is becoming more common, and I increasingly see the value in terms of retaining key staff and in ensuring that fees charged to existing cases are maintained as fair and reasonable. Staff retention is crucial for the eventual upturn in work when IPs will need to be well-placed to follow up on new work and be assured that staff have the experience to deal with queries and progress cases. 

If you get a chance to fly away this summer, you won’t be impressed if you board the plane and see lots of cabin crew with a flight manual and the pilot on a dodgy Zoom connection. Cabin crew have an important role, but there needs to be balance. You want your flight to take off and arrive safely.  There is the same expectation of insolvency appointments that creditors want to see progression along with transparent and timely reporting. It is important that staff can deal with queries and progress cases independently. 

The current lull in work is a perfect opportunity to invest in training.  One small positive is that employees can still participate in training whilst on furlough. All IPs need a competent co-pilot who can be relied upon.

SIP Changes

SIP updates and other notes can be found in the reduced conference slides.

AML Risks

In the slides, the important message for Anti-Money Laundering (AML) risk is that you cannot assess risk by verifying client identities alone. Steps taken in customer due diligence is not a simple tick box exercise; it is an important area to start highlighting suspicious behavior or identify false ID. Staff need to be aware of the limitations of online AML verification and what further checks are required if one area fails. The conference slides give further help on this area in terms of using the verify service.

The key to success in AML compliance is considering the risks your firm faces in accordance with Regulation 18 . Risks are constantly changing. The IPA’s own industry risk assessment used to consider MVLs as the highest risk, but recent events in the last 12 months show that risks from CVLs has increased. The IPA’s supervision risk assessment is being updated and is planned to be published by June. If your risk assessment needs updating, you should do it now. IPs should be reviewing various alerts, news articles and signing up for alerts on the various AML forums to allow you to consider the risks your firm faces so that you can react and plan for emerging risks.   

The onset of Covid has drastically increased fraud. Abuse of the Bounce Back Loan and other support measures is a key current risk and will be for several years to come. The National Audit Office (NAO) has said that taxpayers could lose as much as £26bn from fraud, organised crime or default. IPs will need to be aware of the risks and indicators to look for when reviewing director conduct.

IPs and all staff need to be aware of emerging risks and how quickly these can develop and start be visible in the insolvency profession. Dear IP 117 highlighted the risk of fraudulent employee claims. Those involved in fraud will target firms with weak AML procedures or those desperate for new work. Criminals tend to run out of addresses and names to use. IPs should look at directors other companies, and web presence, which are both important considerations to flag repeated conduct and issues that don’t stack up or support routine pre-appointment questions.

Risks change quickly and IPs need to keep up to date with emerging risks and what are key indicators. Since giving my talk, the BBC has run a story on mini umbrella firms costing UK taxpayer millions. HMRC issued their first guidance on the subject in August 2018, ‘HMRC umbrella company guide’. This guide highlighted the risks of tax fraud, which should be reported to the authorities if you come across it in your work.

Wherever you go this summer, I hope you have a great holiday and a break from risk (just look left and check how many pilots there are).

David Holland