ICAEW members engaged in public practice in the UK are required to hold a Practising Certificate (PC) and to obtain compliant professional indemnity insurance (PII). But, each year, firms and individuals continue to receive fixed penalties or come before ICAEW’s Conduct Committee for falling down on these requirements.
Another common failing, frequently linked to these mistakes, is not having an anti-money laundering (AML) supervisor. If you are in public practice, you come under ICAEW’s Practice Assurance scheme and are automatically supervised for AML supervision if ICAEW is aware of your practice. So, if you don’t have a PC when you should, another consequence is that you might not be AML-supervised.
“Lack of a PC is not normally an isolated incident,” says Claire. “Instead, we find that if you don't have a PC, you're then not likely to have the correct PII and less likely to have an AML supervisor. And that accumulation of breaches can result in a bigger issue.
“These failings are normally interlinked, so they spiral into a more significant set of breaches than people realise,” she explains. “We might contact someone first of all because they don't have a PC yet are a director of an accountancy firm at Companies House. Then, when we explore further, we find there are other contingent issues.”
A lack of understanding
“The PC failing often comes from not understanding the requirements,” says Claire. “We see people who have just carried out a bit of work on the side, and they don't think they're breaching anything. But they haven't considered asking ICAEW if there is anything they needed to do or be aware of.
“One of the things I would always say is that, if you're unsure, ask,” Claire stresses. “You have a responsibility to read and understand the regulations and requirements. It's just not a valid excuse to say: ‘I didn't know’.
“There is a vast amount of information on our website, plus we offer advice telephone lines and the web chat facility,” she adds. “There are so many avenues through which you can ask ICAEW questions and, as a member or firm, that's what we encourage you to do: inform yourself and ask us if you have any doubts.”
What are the consequences?
Where breaches are found, there are several possible outcomes. “The first thing we would look at is a fixed penalty,” explains Claire. “But the fixed penalty process can only be used in certain circumstances. For example, if you also have a failure to have AML supervision then fixed penalties are no longer possible and the case will be referred to a committee hearing (either the Conduct Committee or Practice Assurance Committee).”
To provide a snapshot of how cases are dealt with, statistics for 2023 show that five fixed penalties were issued for not having a PC and two fixed penalties for not having PII. In the first half of 2024 (to June), there have been two fixed penalties for no PC, and none for having no PII.
“During the first six months of 2024, eight cumulative cases have been sent for a Conduct Committee hearing,” adds Claire. “Bearing in mind the Conduct Committee normally hears between 12 and 15 cases at each monthly meeting, it’s not a vast volume but it can so easily be avoided.”
When cases go to the Conduct Committee, should a case be found, any sanctions imposed are decided in line with ICAEW’s Guidance on Sanctions. “As the conduct team, we present a report that summarises all of the issues, together with the evidence, and it's the committee that decides whether a case has been found and then uses the guidance to deem what’s appropriate,” explains Claire.
“We’ve seen cases go to committee where sanctions have included a severe reprimand and fines, plus costs of around £10,000, for not registering for a PC and the knock-on effects of not having PII or an AML supervisor,” she adds. “These are significant amounts of money for probably 99% of our membership base. And for ‘very serious’ cases, the starting point in the guidance for not having a PC includes exclusion from membership.”
There are also wider impacts on members and firms. These might include the time and potential stress involved in going through a disciplinary process, and damage to your own and your firm’s reputation.
“If you receive a publicised consent order, for example, it is there for the public to see,” says Claire. “So, if a potential client searched for you, they would find that information. And I can't reiterate enough, PC cases never really stand alone; they usually incorporate the other PII and AML supervision failings, so all of those will be published.”
Act sooner, rather than later
Claire urges people to self-report as soon as possible if they think they might be breaching requirements. “As an ICAEW member, you have a duty to report misconduct, and that includes by yourself,” she explains. “It’s always better to self-report, rather than for us to hear about it via a third party or discover the breach ourselves.
“My main piece of advice would be to contact ICAEW immediately to rectify the breach,” she says. “As soon as you realise you’re in breach, start the process of applying for a PC, but also self-report at the same time. Do the two things in parallel.
“The worst thing you can do is to bury your head in the sand,” she stresses. “This could extend the breach and result in more significant consequences.”
Under the Guidance on Sanctions, the length of the breach is important. If it lasts less than a year, this is considered a mitigating factor, whereas more than a year is an aggravating factor. Similarly, a ‘breach not corrected or slow to correct the breach’ is an aggravating factor, while rectifying the breach as soon as the allegation is brought to your attention is mitigating.
“People make mistakes,” acknowledges Claire. “We don't want that to happen, but it does. And the best thing you can do if you make a mistake is to be honest and then rectify it. The more engaged someone is in trying to rectify the problem, the quicker we get a solution.
“Our aim is to make sure you're complying with the regulations you've signed up to, and the quicker we can do that, the better for everyone involved,” she adds. “By doing that, we're serving the public interest and maintaining trust and confidence in the accountancy profession.”
Inform yourself of requirements
On 1 January 2024, ICAEW issued its updated ‘Statement on Members Engaging in Public Practice’ to clarify the rules, bring the guidance in line with other regulations and reflect the UK’s exit from the European Union.
One of the key changes was to remove the 10% de minimis limit to align with the Money Laundering Regulations 2017. So, if a firm earns less than 10% of its revenue from accountancy or reserved services, there’s a PC requirement where there may not have been previously. The £100 de minimis limit was also removed with regards to a minimum earnings level per assignment.
“Our regulations weren’t quite aligned with AML supervisory legislation,” explains Claire. “But we’ve married that up now, so a few more people are being pulled into requiring a PC that wouldn't have needed one before.
“It’s really important, if you haven’t checked already, to read the updated document in case you find yourself in that situation,” she says. “When we publicised the document at the beginning of the year, a few members self-reported, saying: ‘I didn't realise I fell in scope’.”
The PII Regulations are also changing from 1 September 2024, so you should check these to make sure you’re aware of the updated obligations. The main revisions include changes to the minimum level of insurance cover and maximum excess.
“We have plenty of resources explaining how to comply with requirements for PCs, PII and AML supervision on ICAEW’s website,” says Claire. “But if you’re still unsure or have specific questions, I’d always encourage you to engage directly with us through one of our helpline channels, whether it's by phone call, web chat or our contact form. ”
Resources
Editor’s note
This article is part of a three-part series of articles on conduct and PSD’s commitment, under oversight by the ICAEW Regulatory Board and our regulators, to provide guidance on the standards expected to strengthen trust in the profession. As the articles publish, we’ll add references to them in the companion articles.
