This framework examines the purpose of the AFSA Regulation and Enforcement division in undertaking the role of the Inspector-General in Bankruptcy in regulating personal insolvency system. 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 2017–18 to ‘maintain confidence in Australia’s personal insolvency and personal property securities systems through delivering fair, efficient and effective trustee and registry services, and risk-based regulation’. 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 ensure the public has confidence in the systems we administer.
The role performed by Regulation and Enforcement 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
- monitor unregistered debt agreement administrators (i.e. those that have 5 or fewer active administrations)
- inspect the systems and files of registered trustees and debt agreement administrators
- investigate complaints and apply sanctions when appropriate.
- fulfill 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)1 and associated legislation by investigating possible offences under the Bankruptcy Act and Personal Property Securities Act 2010 (PPS Act)1 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.
1 Note that this document focusses on regulation of the insolvency system
AFSA’s regulatory framework provides a foundation to determine the most efficient and effective allocation of regulatory resources to compliance and enforcement activities. This framework seeks to balance the need for a planned approach to monitoring compliance of our regulated population against the need to be agile, to enable our response to evolving and emerging risks. It also adopts best practice methodology2 and complies with Regulator Performance Framework principles in seeking to avoid imposing an unnecessary or inappropriate burden on the regulated population.
2 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. 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 are committed to ensuring a high level of regulatory compliance within the insolvency system and will use 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. As part of our regulatory cycle we:
- review this framework annually
- plan the specific activities to be included in the annual Personal Insolvency Compliance Program (compliance program)
- undertake the compliance program throughout the year
- release the results of our activities with any associated guidance to assist practitioners (particularly through the Personal Insolvency Regulator newsletter)
- contribute our results to the AFSA annual report
- produce the annual Personal Insolvency Compliance Report (compliance report)
- plan for the next regulatory cycle.
Diagram 1: annual regulatory cycle
To achieve our goals, we adopt a systematic, risk-based program of compliance assessment activities for our regulated population. These activities include a planned program of physical or eInspections, annual targeted compliance projects, continual proactive monitoring of annulment and personal insolvency agreement proposals, and investigation of complaints. We also maintain our agility so we are able to respond to emerging risks as they arise.
Our compliance program is supported by Enforcement’s ongoing assessment and investigation of Bankruptcy Act offences. Investigation outcomes include issuing infringement notices, seeking compliance from bankrupts, debtors and others in relation to their obligations under the Bankruptcy Act, issuing official cautions and where appropriate referring briefs of evidence to the Commonwealth Director of Public Prosecutions (CDPP).
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 (represented in diagram 2).
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 release podcasts and 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.
Diagram 2: cornerstones of our approach
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.
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.
Using the compliance pyramid
As shown in the compliance pyramid (diagram 3), AFSA continues to recognise that attitudes to compliance by regulated entities can change over time. We are flexible in our approach to regulating practitioners and others, by responding according to the continuum of attitudes to compliance that are encountered. The individuals 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 or enforcement action. We are continually exploring new approaches 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 aim to keep regulated entities at the bottom of the triangle, so to achieve this we work cooperatively with practitioners and others using supportive regulatory strategies. To support our regulated entities we:
- work collaboratively with ASIC, the co-regulator of the insolvency profession
- work closely and consult with professional associations
- provide guidance on our regulatory and enforcement approaches
- provide information to debtors and bankrupts to help them understand their obligations
- provide feedback to practitioners after proactive inspections or targeted projects
- jointly develop standards with professional associations and our co-regulator, ASIC
- provide assistance including involvement in alternative dispute resolution
- engage with non-compliant bankrupts, debtors and others to obtain compliance.
Diagram 3: compliance pyramid (based on Queensland Government model)
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.
Resources and people
To ensure that our staff are adequately trained and exercise appropriate decision-making when monitoring regulatory compliance and undertaking enforcement activities, our key functions and processes are documented. We use these documented processes as the foundation for learning and development, and incorporate and embed them into our professional development framework and our quality assurance framework. Delegations are issued to staff to exercise certain authorities and powers, and these are recorded in our standard operating procedures.
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:
- Personal Insolvency Regulator newsletter editions
- annual Personal Insolvency Compliance reports
- annual Regulator Performance Framework reports
- AFSA’s annual report
- media releases and notices
- podcasts and videos.
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.
Review and improve
We review our own policies, processes and approaches (including this framework) at least annually to ensure we achieve our corporate goals (i.e. we foster confidence in the insolvency system, provide quality information to industry and the public, and deliver value to stakeholders).
We have a complaints and compliments policy, which we use to assess where improvement is 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 or the public.