Protected Trust Deeds (Miscellaneous Amendment) (Scotland) Regulations 2024 [Draft]
The next item of business is consideration of the draft Protected Trust Deeds (Miscellaneous Amendment) (Scotland) Regulations 2024. The committee has received representations from the Institute of Chartered Accountants of Scotland setting out its concerns about the draft regulations, which members might want to ask questions about.
I welcome to the meeting Ivan McKee, who is the Minister for Public Finance. The minister is joined by Scottish Government officials Amy Burns, who is the protected trust deed team leader, and Graham Fisher, who is a deputy director in the legal directorate, and by Fiona Henry, who is the policy development manager at the Accountant in Bankruptcy. I invite the?minister to make a short opening statement.
Thank you, convener, and good morning, members of the committee. I am at the committee to talk about the regulations on protected trust deeds. The regulations aim to take forward stakeholder recommendations that will make improvements to the current protected trust deed process. They are accompanied by further provisions that will help to ensure that the statutory debt solution is fit for purpose, and they provide the necessary support and protection to people who need to access debt relief through that solution.
There has been wide consultation on the changes in the regulations. The provisions that have came from stakeholder recommendations were included in the public consultation document “Scotland’s statutory debt solutions and diligence: policy review response”, and were broadly supported. Additionally, members of the protected trust deeds committee, which is a group of prominent stakeholders who are involved in protected trust deeds, have been consulted throughout the process of developing the regulations and we have worked with them to address their concerns.
The regulations aim to help the most vulnerable people in our society by streamlining the discharge process and allowing an individual to be discharged early from their PTD if there are extenuating circumstances that mean that they can, through no fault of their own, no longer make contributions. That will allow people to be clear of problem debt at the most challenging times in their lives.
Reflecting the existing voluntary PTD protocol in legislation will ensure that all PTDs work to that best practice, which will end the current two-tier system. Ninety-one per cent of the current live PTD case load works under the voluntary system, which proves that it works. The regulations will build on that to ensure that all individuals who are involved in PTDs benefit from the same protection, irrespective of the trustee organisation that is involved.
That includes giving an individual who is in a PTD extra security by ensuring that the trustee will seek the Accountant in Bankruptcy’s agreement before refusing discharge and that, when a dividend is payable, creditors are paid at an earlier date. The new provision to allow the AIB to act as a trustee of last resort will provide security in the event of the failure of a volume provider of PTDs, if no other firm has the capacity to take on its cases. That will provide to all who are involved reassurance that the case will not be left without a trustee and that the administration will be able to continue under AIB until a new trustee is appointed.
The increase in the supervision fee will assist the AIB in its aim of continuing to generate sufficient funds to cover costs from conducting its statutory duties. That should combat the agency’s forecast shortfall over the next few years resulting from the reduction in bankruptcy application fees, which is a policy that was implemented to help the most financially vulnerable people in our society and was done in response to the pandemic.
In conclusion, I believe that the regulations provide a great opportunity to streamline and improve the protected trust deeds process and to ensure that it is fit for purpose. They will provide the necessary support and protection to those who need to access debt relief through that solution, as well as making it work well for others who are affected by the rules. I am happy to take questions.
As the minister will know, in session 5 the Economy, Energy and Fair Work Committee made recommendations on protected trust deeds, which the Government took forward as a voluntary code. Why has the change been introduced as a statutory code? What has changed in the Government’s thinking?
The voluntary code was a step in the right direction. It brought in the requirements that were felt to be necessary, and which have since proved to be necessary: I think that we would all agree that the voluntary code has been working.
However, as I indicated in my opening remarks, we have a two-tier system and not all providers are operating under the voluntary code. The reason for the change is to ensure that the remaining challenge is dealt with and that the requirements in the voluntary code are brought into legislation so that everyone has to comply with them. Along with other measures that are in the provision, that provides security and comfort to those who are involved in the process.
The voluntary code made changes in three areas, two of which are being taken forward in the regulations and are being placed on a statutory footing. However, the third provision in the voluntary code, which requires insolvency practitioners to accept referrals only from lead generators that are regulated by the Financial Conduct Authority, is not being taken forward. What is the thinking on that?
We have taken some advice and have consulted on that. The conclusion was that, at the moment, if people charge fees to provide that work, misselling is being effectively combated by the existing process. There was also a danger that there could be unintended consequences if accountants or other professionals are not able to bring forward cases or point people in the right direction. On balance, and having sounded the matter out with sector stakeholders, we felt that we did not need to put that particular requirement into the regulations.
Do members have questions?
Good morning, minister and officials. ICAS has communicated a number of concerns about the approach that the Government is taking. In its view, the current regime is working well on a voluntary basis, so it does not see the need for legislative intervention, which it regards as “disproportionate and unnecessary” at this stage.
ICAS gives a specific example. Regulation 5 would introduce
“A new procedure to apply to the”
Accountant in Bankruptcy
“for agreement to refuse to discharge a debtor from a trust deed.”
The provision has been introduced
“due to concerns that debtors were frequently being refused discharge inappropriately due to circumstances beyond their control.”
11:00The ICAS paper says that there is no evidence to support that approach and that, at the last meeting of the Accountant in Bankruptcy’s protected trust deeds standing committee,
“it was confirmed that 732 applications to refuse debtors discharges had been received and all 732 were approved.”
ICAS has queried why it is necessary to put the requirements in legislation, given that there is no social ill that has been identified that needs to be cured.
First, I suppose that you could flip that around and ask what is the problem with having that requirement in regulations if it is working and everyone is happy with it.
Secondly, there is an issue in that there is the potential for operation of a two-tier system because not everyone is signed up to the voluntary code. It is worth noting a recent legal case in which the sheriff was clear that the voluntary code does not have a statutory basis.
On the specific example that you have mentioned—colleagues might want to talk to this—the reality is that AIB engages extensively throughout the process. You and I would see only the cases that get to the application stage, but an awful lot more cases are, I expect, headed off at the pass—if I can use that term—during the conversations that AIB has in order to ensure that people are able to work within the process and that they do not have to take cases to the final stage. Do officials want to add anything?
It is true that AIB was in agreement with all 732 cases, as Mr Fraser mentioned, but that hides the work that is involved when applications come in. AIB does a lot of work to discuss every case with the trustee and to see whether a refusal was appropriate or not. It then tries to get the trustee to overturn the matter or to change their minds.
Thank you. I will pick up on a couple of points, minister, if I can. In your last point, you were, in effect, saying that the system works well. I query whether it is necessary to put those things into legislation—I presume that we should legislate only when there is a requirement to do so. If the voluntary approach is working well, should we not persist with it?
The issue comes down to the two-tier system. The process works well in the majority of cases, but not everyone has signed up to the voluntary code.
The evidence suggests that it is working well in all cases.
I will expand on ICAS’s concerns. It is concerned that including in statute the provisions that are in the voluntary code will lead to market distortion. Currently, there is a very small number of providers of protected trust deeds and the market is concentrated. I am sure that neither you nor I have time to watch daytime television, but if you do, you will often see protected trust deeds being heavily marketed by a small group of operators that target the market aggressively. Current figures that are provided by the Accountant in Bankruptcy show that 90 per cent of protected trust deeds in Scotland are administered by only four firms, with two firms accounting for a 70 per cent share of the market.
ICAS’s concern is that, the more we regulate, the more burdensome it will become for other, smaller practitioners to want to take on the work; therefore, that would narrow the market even further for those who might benefit from protected trust deeds. ICAS feels that including the provision in statute would be a disproportionate approach.
I hear what you are saying. I do not want to cast aspersions, and I am not familiar with the providers or with anyone who might want to come into the market, but the other way to look at it is that you would want any providers of protected trust deeds to comply with the voluntary code. Protecting that and putting it in statute will ensure that other players that might want to come into the market are on a level playing field with everyone else. More important is that it would protect the debtors and creditors that are involved in the process. Putting the voluntary code on a statutory footing allows us to do that for any providers that are coming into the market or anyone who is already in it.
Good morning, minister, and thank you for being here. I want to follow on from Murdo Fraser’s question about potential unintended consequences. Do you see any unintended consequences from the regulations for consumers?
Do you mean for debtors?
Yes.
The regulations have been worked through over a period of time with the expert committee and various players in the sector that come at the matter from different perspectives in order to ensure that problems have—as I hope—been ironed out. Are there any consequences in particular that you have concerns or thoughts about?
There was a lack of direct engagement with people who are in debt as the regulations were pulled together. There was clearly discussion with people from the advice sector, but not much with people who are in debt directly. What will be the impact of the regulations for people who are in debt—for consumers themselves?
The regulations should offer more protection. As I have said, putting the voluntary code on a statutory footing removes the two-tier system and the potential for people not to apply the voluntary code. The regulations give clarity on the process so that everybody will know what it is.
Tomorrow, we will deal in Parliament with the Bankruptcy and Diligence (Scotland) Bill. One of the provisions in that bill is on provision of a leaflet with information on the cooling-off period and so on, which is also helpful.
It is clear that the process that has been worked through was to bring in, through the consultation and through the expert panel, people who understand the process. As you have rightly identified, that includes debt advice charities and organisations and others. I hope that they will be able to reflect the perspectives and needs of debtors who will use the process.
Okay. Thank you. Do you see any potential issues with the possible market distortion that Murdo Fraser alluded to?
I do not, for the reasons that I have identified.
The membership of the standing committee, which Maggie Chapman has referred to, is not public. We have managed to establish that on it there are 10 creditor representatives, four insolvency practitioners, two regulatory bodies and two advice sector bodies, so it is weighted towards the interests of creditors. Can the minister exert some influence so that we can find out what its membership is? That has been difficult to find out.
I do not have that information in front of me. I assume that it is not secret.
We approached the members of the PTD standing committee to ask for their permission to give their names, but I am afraid that we could not get that fully awarded. That is why we have had to give you the statistics in that way. However, we can go back to them and ask whether we can send their names to the committee in writing after this session.
We have an idea of what bodies are involved. The larger point with regard to who they are is that membership is weighted towards creditors and only two money advice sector bodies are represented. We raised concerns about unintended consequences and the degree of consultation that has taken place.
I can understand that observation. To be fair, I note that I was not aware of the committee’s membership. However, if people from the money advice sector or people with other perspectives are on the committee, I am sure that they will make their voices heard. The committee is there to gather views and to reflect and sense check, and to see whether there might be unintended consequences. I am sure that its members would be well able to highlight where they saw concerns, and that those concerns would be taken on board. However, if you require any more information about the committee, I will seek to get it.
Finally, the regulations will increase the fees by £20, from £100 to £120. Have you given any consideration to the impact that the increased fees might have for debtors and creditors?
Yes. First of all, it is important to recognise that the fees have not been increased since 2012, I believe. Inflation over that period has been 36 per cent. It is significant that we are looking at just more than half the inflation increase over that period being clawed back through the fee increase. That will flow through and be picked up on the creditor side. We reckon that there is about a 3 per cent reduction in the amount of money that creditors will receive through the process as a consequence of that change.
I think that it is a fair increase. As I said, it represents barely half of inflation over the period. It reflects increased costs and allows the process to continue to function and be administered effectively.
Okay. Thank you.
There are no more questions. That brings us to agenda item 9, which is formal consideration of the motion to approve the instrument. I invite the minister to move motion S6M-13108.
Motion moved,
That the Economy and Fair Work Committee recommends that the Protected Trust Deeds (Miscellaneous Amendment) (Scotland) Regulations 2024 [draft] be approved.—[Ivan McKee.]
Motion agreed to.
Given the tight timescales involved, I invite the committee to delegate responsibility to me, as convener, to sign off the report. Do members agree to that?
Members indicated agreement.
I thank the minister and officials for attending the meeting.
11:10 Meeting continued in private until 11:17.Air ais
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