R3 comments on publication of Government’s personal insolvency framework review

05 July 2022

Caroline Sumner, CEO of insolvency and restructuring trade body R3, responds to the publication of the Government’s review of the personal insolvency framework:

“This review is welcome. In recent years we have seen overarching reforms to the corporate insolvency framework but only individual reforms to the personal framework. With individuals currently dealing with the residual impact of the pandemic and with inflation at a 40-year high, now is the right time to ensure our personal insolvency framework is best placed to help indebted individuals deal with their financial issues.

“The Government has, to its credit, already introduced the breathing space scheme, something the insolvency profession called for, while we also have the new Statutory Debt Repayment Plan coming online in the next 12 months. But given the range of existing personal insolvency procedures, we need to ensure our framework is coherent and leads to clear and reliable outcomes for those in debt as well as their creditors.

“With the numbers of individuals likely to be facing financial problems in the coming months, demand for advice is likely to far exceed what the sector can currently supply. One reform that could help to increase the supply of advice would be the widening of the insolvency profession’s exemption from FCA regulation.

“Insolvency practitioners, who are already heavily regulated and qualified to provide financial advice, are exempt from FCA regulation but only where they are giving advice in ‘reasonable contemplation’ of a formal appointment in a subsequent insolvency procedure. This means that insolvency practitioners who wish to provide general debt advice need to be double-regulated – both by their insolvency regulator and the FCA – making it prohibitively expensive to offer this advice.

“Widening the current exemption so that insolvency practitioners can provide this advice irrespective of whether they expect to be appointed would be a quick way of increasing the supply of debt advice, at no cost to the taxpayer.”