This document examines the purpose of AFSA Regulation and Enforcement division in undertaking the role of the Inspector-General in Bankruptcy in regulating personal insolvency practitioners. It explores the philosophies and core strategies used in undertaking this role, against a backdrop of AFSA's vision, purpose, stakeholder and public perceptions and expectations.
AFSA’s vision is to be a dynamic organisation that facilitates improved and equitable financial outcomes for consumers, business and the community, through excellence in service delivery. Our vision is achieved through our purpose under the AFSA Corporate Plan 2016–17 being to ‘provide improved and equitable financial outcomes for consumers, business and the community through the application of bankruptcy and personal property securities law and the regulation of personal insolvency practitioners, and trustee services.’ AFSA’s four goals are highlighted in the Corporate Plan—with Goal 1 of direct significance to the work done in the Regulation and Enforcement division.
Goal 1: Foster confidence
We build strong client and stakeholder confidence and uphold the integrity of the personal insolvency and securities programmes we administer.
The role performed by Regulation and Enforcement is:
- regulating the administrations and activity of trustees and debt agreement administrators to ensure high standards of personal insolvency practice and procedure by undertaking the following tasks:
- registering private bankruptcy trustees and debt agreement administrators
- monitoring unregistered debt agreement administrators (i.e. those that have five or fewer active administrations)
- inspecting the systems and files of registered trustees and debt agreement administrators
- investigating complaints and applying sanctions when appropriate
- fulfilling the Inspector-General’s administrative review role by determining applications for review of decisions made by trustees
- ensuring a high level of compliance by debtors, bankrupts and their associates, practitioners and others with the requirements of the Bankruptcy Act 1966 and associated legislation by investigating possible offences under the Bankruptcy Act and preparing briefs of evidence for prosecution.
This paper outlines the regulatory framework that underpins, guides and supports the regulatory strategies and approaches adopted by AFSA’s Regulation and Enforcement division.
AFSA’s regulatory framework provides a foundation for determining the most efficient and effective allocation of regulatory resources to compliance and enforcement activities. This framework seeks to balance the need to take a planned approach to monitoring compliance of its regulated population against the need to be flexible to respond to evolving and emerging risks. It also adopts best practice methodology1 and complies with the principles outlined in the Regulator Performance Framework so that ongoing regulatory reform is considered so as not to impose an unnecessary or inappropriate burden on the regulated population.
1 ANAO’s Better Practice Guide to Regulation
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. AFSA bases its regulatory framework not only on the APS values, but also on actions and behaviours that are essential to achieve optimal compliance. These include:
- acting as a ‘gatekeeper’, by maintaining appropriate barriers to entry, to ensure that only appropriately qualified and experienced individuals enter
- appropriate compliance monitoring of the conduct of registered insolvency professionals
- maintaining consultative and cooperative working relationships with stakeholders including those involved in the personal insolvency profession and related professional associations
- working with other regulatory agencies to seek cooperation and consensus in approaches to common regulatory issues
- seeking improvements in practitioners’ processes and procedures to address risks identified through our compliance monitoring activities
- encouraging and recognising, through a reduced regulatory burden, voluntary compliance and facilitating the ability of stakeholders to comply with legislative and policy requirements
- maintaining 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
- ensuring that the Bankruptcy Act is administered and enforced consistently, appropriately and without unnecessary regulatory burden or cost
- only taking 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
AFSA Regulation and Enforcement is committed to ensuring a high level of regulatory compliance within the insolvency profession and will utilise the most effective methods of regulation to achieve this objective. While remaining agile, we adopt a cyclical approach to regulation as shown in our annual regulatory cycle at diagram 1. This involves:
- reviewing this framework on an annual basis
- planning the specific activities to be included in the annual Insolvency practitioner compliance programme (Compliance programme)
- undertaking the Compliance programme throughout the year
- releasing the results of our activities with any associated guidance to assist practitioners (particularly through the Personal Insolvency Regulator quarterly newsletter)
- contributing our results to the AFSA annual report
- producing the annual Personal insolvency practitioners compliance report (Compliance report)
- planning for the next cycle.
Diagram 1: annual regulatory cycle
To achieve our goals we adopt a systematic, risk-based programme of compliance assessment activities for our regulated population. These include a planned programme of physical or eInspections, annual targeted compliance projects, continual proactive monitoring of annulment and personal insolvency agreement proposals, and investigation of complaints.
Regulation and Enforcement seeks to promote voluntary compliance during our interactions with practitioners. The cornerstones of our approach in promoting voluntary compliance include the following four key areas (represented in diagram 2).
Understand the environment
- This includes the identification of trends or systemic issues within the insolvency profession, high-risk activities, and regulatory gaps. We also seek confirmation of a practitioner’s positive compliance culture.
- We 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. We acknowledge that regulation is not a ‘one-size-fits-all approach’ and therefore ensure that strategies are tailored to those we regulate.
- We regularly meet with the Australian Securities and Investments Commission (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
Regulation and Enforcement issue various forms of guidance and information to help achieve voluntary compliance by the insolvency profession. These include practice statements and guidance released on our website, the publication of the quarterly Personal Insolvency Regulator, the annual Personal insolvency practitioner compliance report, issuing podcasts, and conducting information sessions. These tools are used to guide practitioners about key issues identified through the inspection program or which may present as a threat or opportunity to the insolvency sector.
Diagram 2: cornerstones of our approach
Persuade and engage
Regulation and Enforcement undertakes a number of activities in undertaking our regulatory role including seeking to engage with practitioners and to negotiate good regulatory outcomes and voluntary compliance. The activities include:
- receiving complaints about potential non-compliance of insolvency practitioners and determining the most appropriate action to take, including requiring remedial action
- undertaking our statutory duty as delegate of the Inspector-General in conducting reviews and remuneration determinations
- requesting information from practitioners about their compliance with the Act as part of a targeted strategic focus area each year
- undertaking risk based inspections of practitioners’ systems and controls and individual administrations.
Regulation and Enforcement 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 profession or to reduce the risk of non-compliance by the practitioner. These may be identified through the inspection programme or through investigation of complaints, or via other intelligence.
Monitor and enforce
Regulation and Enforcement undertakes monitoring of compliance trends to identify specific compliance issues or risks within the personal insolvency sector. Regular activities that are undertaken as either monitoring or enforcement include:
- undertaking proactive monitoring of annulment and personal insolvency agreement proposals to ensure compliance with the Act
- monitoring advertising of debt agreement or pre- insolvency related services for misleading or deceptive advertising
- investigating and prosecuting alleged offences by bankrupts or practitioners.
Regulation and Enforcement adopts a staged approach to enforcing compliance and will undertake administrative disciplinary action where practitioners have not met the requirements of the 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, AFSA Regulation and Enforcement will take quick decisive action.
Act as a gatekeeper
Regulation and Enforcement also undertakes a statutory role as a gatekeeper to the profession. The process of registration of 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 Act to convene a committee to consider the cancellation of the registration of practitioners or to impose conditions on their registration.
AFSA implements an annual risk-based Compliance programme, applying appropriate regulatory principles and using available data and intelligence, including taking into account consultation with the profession prior to the programme’s annual public release. The compliance programme includes a number of strategic focus areas that may be included as part of the National inspection programme or which may 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, a risk analysis of each practitioner is undertaken, based on the size of their business, robustness of systems and controls in place, history of the practitioner in relation to complaints, inspection errors, Inspector-General reviews overturning their decisions and evidence of any conduct issues identified by ASIC for those practitioners that are co-regulated. In addition to undertaking a risk rating based on empirical data in our risk model, we also endeavour to take time to understand what leads individual practitioners to comply or not comply. A practitioner’s risk rating and their attitude to compliance will determine the strategies adopted for achieving compliance.
Using the compliance pyramid
AFSA continues to recognise that as the compliance pyramid shows in diagram 3, attitudes to compliance by a practitioner can change over time. AFSA is flexible in its approach to regulation of practitioners, by responding according to the continuum of attitudes to compliance that are encountered. The practitioners at the top of the pyramid, being intentionally non-compliant, will often absorb the most resources and time to either manage their attitude to a more compliant response or manage them by way of disciplinary action. New approaches are continuously being explored to minimise regulatory burden and improve the efficiency of our processes.
The compliance pyramid gives people every opportunity to get it right. Research shows that a regulator should be aiming to keep practitioners at the bottom of the triangle, so Regulation and Enforcement commences on the basis of working cooperatively with practitioners using supportive regulatory strategies. These include:
- working collaboratively with ASIC, the co-regulator of the insolvency profession
- working closely and consulting with professional associations
- providing guidance
- providing feedback after proactive inspections
- jointly developing standards with professional associations and our co-regulator, ASIC
- providing assistance including involvement in alternative dispute resolution.
Diagram 3: compliance pyramid (based on Queensland Government model)
Evolving regulatory strategy
Regulation and Enforcement will always continually seek to improve the alignment of our monitoring strategies and 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
- active management of 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.
- working collaboratively with ASIC, the co-regulator of the insolvency profession, to reduce the regulatory burden wherever possible
- continued used of targeted compliance projects to address systemic or high level risks identified within the sector; annual inspections or ongoing monitoring of higher risk practitioners
- effecting voluntary compliance through regulatory influence.
Resources and people
To ensure that our staff are adequately trained and exercise appropriate decision-making in monitoring regulatory compliance, our key functions and roles are documented. These are used as the foundation for learning and development; are incorporated into our professional development framework and are embedded into our quality assurance framework. Delegations are issued to staff for the exercise of certain authorities and powers and these are recorded in our standard operating procedures.
Reporting our outcomes
The outcomes that Regulation and Enforcement obtains under its regulatory compliance programme, and other monitoring activities are reported in a number of areas. This reporting seeks to provide feedback to practitioners, the insolvency profession in general, and impacted stakeholders. The reports and other media used to provide this information include:
- Personal insolvency regulator
- Personal insolvency practitioner compliance report
- Regulator performance framework annual report (from December 2016 for the 2015-16 financial year)
- AFSA annual report
- media releases
We also maintain regular liaison with ASIC, our co-regulator in order to share and discuss common regulatory issues. This includes how best to communicate key messages to insolvency practitioners and other stakeholders.
Review and improve
We will review our own policies, processes and approaches (including this framework) on at least an annual basis to ensure that our goals are being achieved—i.e. confidence is being fostered in the insolvency industry, quality information is provided to industry, and we are delivering value to stakeholders.
We have a complaints and compliments policy, which is used to assess any areas of improvement needed in the regulatory and enforcement areas of the business. In addition, we use our regular consultation processes with stakeholders to identify areas for improvement or further clarification for practitioners.