The disclosure of information to third parties can be a difficult area for practitioners advising on tax. In previous articles we considered how to deal with professional enquiries and requests for information from HMRC. In this final article, we’ll look at how to deal with requests for information from a bank or other lender and from an adviser working on a different transaction, such as the purchase of a business. 

Requests for information from banks or other lenders

Banks, lenders and other organisations often make requests to accountants and other advisers who assist clients on their tax and financial affairs for an ‘adviser’s certificate’ or letter. These are presented as very straightforward documents to support clients when they are seeking to enter into financial transactions (eg, a loan or mortgage; a guarantee relating to the payment of care home fees for a family member).

Often the adviser’s client is the business, or the company, and the loan in question will be sought by the individual, director or shareholder. Usually, the adviser is not told the purpose of the loan, the amount of the loan or the amount of any equity against which it is being secured. They may not even be told the name of the entity granting the loan, so do not know who is going to rely on the information they’re being asked to provide.

The adviser may be asked to complete a certificate. The certificate normally has tick boxes and does not allow for caveats to be added. The certificate usually asks the adviser to confirm things that the adviser cannot know, only things that the adviser has been told by their client. My concern is that the certificate is being used by the bank, lender or other party making the request to use the adviser completing the form to essentially guarantee the underwriting of the loan.

In order to accurately complete the form, the adviser should first of all determine if they act for the person who is taking out the loan (ie, the individual who is responsible for the loan). If any information is being provided by a third party, for example, a company, the company will also have to consent to provide information in addition to the person responsible for the loan.

If the adviser decides they want to help the individual who is taking out the loan by providing something to the bank, then they need to think about what they know as opposed to what they have been told. For example, they know what is in the filed tax return (if the adviser filed this) but they do not know details of the assets the client holds. Even if the client supplies them with a bank statement, they do not know if, the day after the date on the bank statement, funds were removed. The adviser cannot say that the client has funds in their account of £xxx. All the adviser can say is that they have been supplied with a bank statement by the client, copy attached.

Great care should be taken over the drafting of these statements. ICAEW has published guidance and can assist member firms with queries. Members are advised to consult the section on mortgages and other client references in ICAEW’s helpsheet on the disclosure of confidential information. This explains that it is up to the member whether or not to reply to the request, but they must not do so unless they have the authority of the client. There is also a helpsheet covering the topic in detail: References on clients’ financial status. It may be that legal advice is also necessary. Members may also wish to consider consulting with their insurers.

Requests from other advisers

An adviser acting in relation to an intended purchase of a business (the buyer’s advisers) may want to see work carried out by the adviser who prepared the accounts for an earlier year (the accountant). This may be done as part of the buyer’s adviser’s due diligence on the purchase. The work done by the accountant was for an earlier period, and was not carried out with an intended sale in mind.

The accountant should obtain their client’s consent to disclose their confidential information so as not to breach confidentiality. It would be advisable for the accountant to ask the buyer’s advisers to sign ‘hold harmless’ letters before supplying copies of the work. This would permit the buyer’s advisers to see the work but on the basis that they agree that the work was done for one purpose (and not the purpose the buyers intend), that they will not rely on the work and will bring no claims on the work. Legal advice will be needed in this respect to ensure that the accountant is protected from claims in relation to the provision of their work. The accountant should not automatically rely on any draft hold harmless letters provided by the buyer’s advisers.

If the buyer’s advisers want to be able to rely on the documents, a ‘reliance letter’ will be required, and a fee is usually charged to reflect the risk. Again, this requires legal advice to ensure that the appropriate caveats are put in place with the relevant protections, and again, the accountant shouldn’t rely on a draft reliance letter provided by the buyer’s advisers.

An alternative scenario is where the adviser is carrying out work for his or her client and the intention is to allow a third party to see that work at the time it is being done. An example might be where an adviser is valuing an asset for his or her client prior to an intended purchase and the client’s lender also wants to see the valuation. In those circumstances, it might be possible to allow that third party (the lender in the example) to be provided with the work on consideration that they become a party to the engagement letter, and are bound by all the terms. Again, legal advice will be needed to ensure that the contract is effective to protect the release to the third party.

As we’ve seen, it is possible for an adviser to consent to a request to disclose their work to a third party in order to help their client. However, care must be taken as the issue is complex, and risky for the adviser. Detailed guidance on this area is provided by ICAEW in Section F of the helpsheet Managing the professional liability of accountants. This includes guidance on clarifying for what purpose, and for whose benefit work has been performed in the engagement letter and the work itself. The adviser should pay close attention to this, and should also consider if legal advice is required.

Members should also be aware that ICAEW has published a helpsheet on the disclosure of confidential Information to insolvency practitioners or the Insolvency Service. 

Karen Eckstein, solicitor, Cert Institute of Risk Management, a CTA with 30 years’ experience of defending professional negligence claims (karen@kareneckstein.co.uk)