Regulatory Framework for RDAAs

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Regulatory Framework

Our regulatory framework explains how AFSA approaches the regulation of the insolvency profession.

We also provide guidance on general and more specific duties of debt agreement administrators. See ongoing obligations and standards.

AFSA’s purpose is to maintain confidence in Australia’s personal insolvency and personal property securities systems. AFSA’s vision is to be a world-class government service provider and firm and fair regulator that delivers improved and equitable financial outcomes for consumers, business and the Australian community. We need to deliver outcomes that all our stakeholders consider to be appropriate, consistent and effective.

AFSA’s four goals are highlighted in the corporate plan, with Goal 1 of direct significance to the work done in the Enforcement and Practitioner Surveillance division.

Goal 1: Foster confidence

We ensure the public has confidence in the systems we administer.

The role performed by Enforcement and Practitioner Surveillance is to:

  • regulate the administrations and activities of trustees and debt agreement administrators to ensure high standards of personal insolvency practice and procedure. To do this we:
    • register private bankruptcy trustees and debt agreement administrators
    • inspect the systems and files of registered trustees and debt agreement administrators
    • investigate complaints and apply sanctions when appropriate.
  • fulfil the Inspector-General’s administrative review role by determining applications for review of decisions made by trustees
  • ensure a high level of compliance by debtors, bankrupts and their associates, practitioners and others with the requirements of the Bankruptcy Act 1966 (Bankruptcy Act) and associated legislation by investigating possible offences under the Bankruptcy Act and Personal Property Securities Act 2010 and preparing briefs of evidence for prosecution.

Our compliance values and behaviours

AFSA is committed to the Australian Public Service (APS) values, which require that we are impartial, committed to service, accountable, respectful and ethical. We base our regulatory framework not only on the APS values, but also on actions and behaviours that are essential to achieve optimal compliance. We:

  • act as a ‘gatekeeper’, by maintaining appropriate barriers to entry, to ensure that only appropriately qualified and experienced individuals enter
  • monitor compliance of registered insolvency professionals
  • maintain consultative and cooperative working relationships with stakeholders including those involved in the personal insolvency profession and related professional associations
  • work with other regulatory agencies to seek cooperation and consensus in approaches to common regulatory issues
  • seek improvements in practitioners’ processes and procedures to address risks identified through our compliance monitoring activities
  • encourage and recognise, through a reduced regulatory burden, voluntary compliance and facilitate the ability of stakeholders to comply with legislative and policy requirements
  • maintain the effectiveness and integrity of staff involved in regulatory and enforcement activities through training, documentation of regulatory and enforcement processes, and setting appropriate responsibilities and accountabilities in decision making
  • ensure that the Bankruptcy Act is administered and enforced consistently, appropriately and without unnecessary regulatory burden or cost
  • only take enforcement or disciplinary action where such action is clearly in the public interest to maintain the integrity of the personal insolvency industry.

Our approach to regulation

We seek to promote voluntary compliance during our interactions with practitioners and individuals within the personal insolvency system. The cornerstones of our approach in promoting voluntary compliance include the following four key areas.

Understand the environment

To understand the environment we regulate, we:

  • identify trends or systemic issues within the personal insolvency system, high-risk activities, and regulatory gaps
  • seek confirmation of a practitioner’s positive compliance culture
  • use data analytics to ensure we gather relevant internally sourced information to feed into our compliance program, generally as one of our strategic focus areas each year or the focus areas for our inspection program
  • acknowledge that regulation is not a ‘one-size-fits-all approach’ and tailor strategies according to those we regulate
  • regularly meet with ASIC, the co-regulator of the insolvency profession. We do this to ensure we understand current trends and issues that relate to practitioners who have dual registrations in both personal and corporate insolvency administration. This cultivates a collaborative and harmonised approach that strives to reduce the regulatory burden wherever possible.

Guide and inform

AFSA issues various forms of guidance and information to help achieve voluntary compliance by the insolvency profession. We publish our practice statements and guidance on our website, along with the Personal Insolvency Regulator newsletter, and annual compliance program and report. We also conduct information sessions. We use these tools to guide and inform practitioners about our focus areas for each compliance program, and highlight key issues identified through the inspection program or those that may present as a threat or opportunity to the insolvency sector.

Persuade and engage

We undertake a number of activities in fulfilling our regulatory role, including seeking to engage with practitioners and to negotiate good regulatory outcomes and voluntary compliance. As part of these activities, we:

  • receive complaints about potential non-compliance of insolvency practitioners, decide which ones need to be resourced, and then determine the most appropriate action to take, including remedial actions
  • undertake our statutory duty as delegate of the Inspector-General to conduct reviews and remuneration determinations
  • request information from practitioners about their compliance with the Act as part of a targeted strategic focus area each year
  • undertake risk-based inspections of practitioners’ systems and controls, and individual administrations
  • engage with non-compliant bankrupts, debtors and others to obtain compliance.

We will, in appropriate matters, negotiate remedial action with practitioners when compliance risks or breaches are identified that need rectification action to preserve the integrity of the insolvency system or to reduce the risk of non-compliance by the practitioner. We will also escalate matters involving non-compliant bankrupts, debtors and others for more serious action, such as referring a brief of evidence to the Commonwealth Director of Public Prosecutions. These matters may be identified through the compliance program or through investigation of complaints and referrals, or via other intelligence.

Monitor and enforce

We actively monitor compliance trends to identify specific compliance issues or risks within the personal insolvency sector. As part of monitoring and enforcement, we regularly:

  • undertake proactive monitoring of annulment and personal insolvency agreement proposals to ensure compliance with the Bankruptcy Act
  • monitor advertising of debt agreement or pre-insolvency related services for misleading or deceptive advertising
  • investigate and prosecute alleged offences by bankrupts, practitioners or other parties.

We adopt a staged approach to enforcing compliance and undertake administrative disciplinary action in situations where practitioners have not met the requirements of the Bankruptcy Act or professional standards in a serious or material way. When a practitioner has been given a reasonable opportunity to comply and has elected not to do so, we will take quick decisive action.

Act as a gatekeeper

AFSA also undertakes a statutory role as a gatekeeper to the personal insolvency profession. The process of registering practitioners seeks to ensure that only appropriately qualified and experienced individuals are allowed to operate in the profession, and continue to act as registered practitioners. To support this process, the Inspector-General (IG) and the IG’s delegates have powers under the Bankruptcy Act to convene a committee to consider the cancellation or suspension of the registration of practitioners or to impose conditions on their registration. This statutory role also encompasses the IG’s role to determine remuneration for trustees where creditors have not given approval, and to review certain decisions of registered trustees.

The risk framework

AFSA implements an annual risk-based compliance program, applying appropriate regulatory principles and using available data and intelligence, including taking into account consultation with the profession prior to the program’s annual public release. The compliance program includes a number of strategic focus areas that may be included as part of the national inspection program. These focus areas may also form part of a specific targeted compliance project where a selected group of practitioners are contacted on the basis of meeting a series of criteria for that project. The focus of these targeted areas changes each year, based on industry intelligence, collaboration with ASIC and other data available to AFSA.

Currently, we use data available in AFSA’s systems to develop an objective risk ranking and profile for each practitioner. In addition to utilising the results from the new risk profiling system, we also endeavour to take time to understand what leads individual practitioners to comply or not comply. A practitioner’s risk profile and their attitude to compliance will determine the strategies we adopt to achieve compliance.

Evolving regulatory strategy

We continually seek to improve the alignment of our monitoring strategies and our response to the level of risk encountered.  This evolving strategy is centred on the following common ideals:

  • guide and inform the profession to help facilitate the maintenance of best practice standards
  • actively manage individual practitioners in relation to more serious issues identified through a clearly defined regulatory strategy to reduce their level of risk. This may include remedial action or show cause notices for serious non-compliance
  • work collaboratively with ASIC, the co-regulator of the insolvency profession, to reduce the regulatory burden wherever possible
  • continue to use targeted compliance projects to address systemic or high-level risks identified within the sector; annual inspections or ongoing monitoring of higher risk practitioners and persons of interest
  • effect voluntary compliance through regulatory influence
  • effectively use enforcement resources to achieve outcomes that result in personal and general deterrence.

Our enforcement tools

We have a number of tools in our toolkit and we make careful decisions in accordance with our framework about the appropriate tool to use for each investigation.

Infringement notice

Offences that are subject to the infringement notice regime are detailed in the table listed at section 277B of the Bankruptcy Act and are offences of strict liability.

This regime empowers the Inspector-General in Bankruptcy to issue an infringement notice to an alleged offender for the payment of a specified penalty, in lieu of criminal prosecution action being instigated.

The regime provides an efficient means of penalising behaviour, which, while relatively minor in criminality, can have significant repercussions for the effective administration of bankrupt estates, integrity of the National Personal Insolvency Index or regulation of insolvency practitioners.

The penalty that applies varies depending on the alleged offence and is linked to section 4AA of the Crimes Act 1914 (Cth).

Compliance letter

AFSA promotes compliance and where appropriate, will seek voluntary compliance in the first instance.

Compliance-related offences are administrative-type offences where an individual (bankrupt or not) has failed to comply with a requirement under the Bankruptcy Act or Bankruptcy Regulations 2021. Typically these offences involve the person failing to provide specific information or documents and are generally dealt with initially by a letter from AFSA reminding the person of their obligation and informing them of the consequences of non-compliance, and thereby seeking voluntary compliance.

Official caution

An official caution informs a person that their actions are suspected to be unlawful and seeks to deter and educate them from similar behaviour in the future. Enforcement considers the issuance of an official caution is a legitimate enforcement outcome.

An official caution will only be considered when it appears that there is prima facie evidence of a Bankruptcy Act offence and where we consider it would not be in the public interest to investigate and refer a brief of evidence to CDPP. We may also issue an official caution if an investigation would not be in accordance with our strategic priorities. 

In some instances, it may be appropriate for an official caution to be sent in relation to a compliance offence. For instance, a bankrupt may have moved and not advised the trustee of their new address but the trustee becomes aware of this from another source. A compliance letter is not appropriate as the trustee is aware of the new address, but an official caution will serve as a reminder of the bankrupt’s obligations.

Refer a brief of evidence to CDPP for prosecution

A brief of evidence contains various documents, statements and exhibits that AFSA prepares for CDPP to consider if there is sufficient evidence to prosecute a case and if it is in the public interest to do so.

AFSA is not responsible for the decision to commence prosecution action—this is the responsibility of the CDPP. When considering referring a brief to the CDPP, AFSA considers the facts of each case and the Prosecution Policy of the Commonwealth.

In determining whether there is sufficient evidence to prosecute a case, the CDPP must be satisfied that there is prima facie evidence of the elements of the offence and a reasonable prospect of obtaining a conviction.

Assessment of referrals

Each referral is assessed to determine if it contains an allegation of an offence or contravention within Enforcement’s jurisdiction. If a matter is recommended for investigation, it is given a priority and an indication of when the referral will receive investigative attention. 

If an offence or contravention has been identified, a number of factors are considered, including the seriousness, criminality and associated harm of the offence, in conjunction with the Prosecution Policy of the Commonwealth.

When determining whether an official caution is appropriate, in addition to the above, the following issues are considered:

  • previous official cautions from AFSA Enforcement relating to similar conduct
  • impact of the offence (whether the detrimental or potential detrimental impact is minor or trivial in nature)
  • adverse findings in courts or tribunals which traverse or relate to the alleged offender’s alleged conduct (i.e. pattern of behaviour that needs to be addressed)
  • deterrence effect (either to the general public or the alleged offender)
  • our strategic priorities.

Investigation principles

An investigation is a process of seeking information relevant to an alleged, apparent or potential breach of the law, involving possible judicial proceedings. It is a search for truth, in the interests of justice and in accordance with the law.

Investigations are conducted in accordance with internal policy and procedures and the Australian Government Investigations Standards 2011.

At any time during an investigation, the direction, approach or scope may change. Some typical examples where a change might occur include:

  • evidence indicates the alleged offender has not committed the alleged offence or contravention
  • evidence indicates offences in addition to what was referred
  • mitigating factors such as mental health and language barriers which reduce the likelihood of a successful prosecution (and referral to CDPP)
  • Enforcement’s resources and priorities have changed.

How we monitor compliance

AFSA monitors the activities of practitioners to ensure compliance with the Act.

Reporting our outcomes

The outcomes that we obtain under our compliance program, and other monitoring and investigation activities, are reported in a number of areas. These reports seek to provide feedback to practitioners, the insolvency profession in general, the public, and impacted stakeholders. The reports and other media used to provide this information include:

  1. Personal Insolvency Regulator newsletter editions
  2. annual Personal Insolvency Compliance reports
  3. annual Regulator Performance Framework reports
  4. AFSA’s annual report
  5. media releases and notices

We also regularly liaise with ASIC—our co-regulator—in order to share and discuss common regulatory issues, including how best to communicate key messages to insolvency practitioners and other stakeholders. We also use our regular liaison activities with professional insolvency associations, to communicate the intentions and outcomes of our regulatory activities.