As part of their revised monitoring regime for IVAs, the ICAEW are undertaking annual visits to volume IVA providers. For those IPs who undertake a significant number of IVAs each year, but who have not received a monitoring visit this year, the ICAEW have recently issued an annual return to obtain information about their practices. This is part of a risk assessment process to help prioritise future monitoring visits.
Included in the annual return is a question asking for information about any commissions or referral fees received by the IP. You may, for example refer debtors who are not appropriate for an IVA to a debt management company or a secured lender and receive a commission for doing so. You should disclose any such commissions received in your annual return, but what other steps should you be taking?
This situation is covered by the IFAC Code of Ethics. This Code has been adopted by the accountancy bodies, including the ICAEW and ACCA, and the Code’s framework of principles applies to all “professional accountants”, even though the section giving specific illustrations as to how that framework applies to specific situations in insolvency cases has yet to be completed by the Joint Insolvency Committee.
The Code permits the receipt of a commission, or referral fee, in certain circumstances, for example for referring a client to an expert who provides a service that the accountant himself does not provide, but indicates that accepting a commission “may give rise to self interest threats to objectivity and professional competence and due care.” As a result, under the Code the accountant cannot receive a commission unless he has “established safeguards to eliminate the threats or reduce them to an acceptable level.” The Code gives examples of safeguards to deal with threats, and in essence the level of safeguard required depends upon whether a “fiduciary relationship” exists between the accountant and the client. According to the ICAEW’s Insolvency Newsletter, a “fiduciary relationship” is one where the IP gives professional advice to the client so as to give rise to a relationship which in law could be regarded as one of “trust and confidence.” Clearly it will depend upon the facts and circumstances of a particular case as to whether or not there is a fiduciary relationship and this is something on which you should seek the guidance of the Ethics Department of your regulatory body.
Where there is a “fiduciary relationship” then the Code states that the accountant is “legally bound to account to the client for any commission received”, such that he needs “the informed consent of the client if he is to retain the commission”. Full disclosure of the amount of the commission must be made, disclosure must be made prior to receiving the commission and to provide best evidence the consent from the client should be in writing. Even where a “fiduciary relationship” does not exist then the accountant should still disclose that a commission will be, or is likely to be received, together with the amount if it is known at the time of disclosure.
The Insolvency Service are currently consulting with the regulators about the approach to monitoring volume IVA providers and it is likely that the principles underpinning the ICAEW’s revised approach will be adopted by all regulators in due course.
