New licence conditions designed to improve customer service standards and decrease the likelihood of supplier failure will be introduced in the new year, Ofgem has revealed.
In a decision document published today (26 November) Ofgem outlined a series of measures as part of its ongoing supplier licence review.
Specifically, the regulator says its new measures are designed to promote more responsible risk management, improve governance and increase accountability, as well as enhance its market oversight.
Promoting more responsible risk management
A new principles-based requirement is being introduced requiring suppliers to manage their finances effectively and actively manage the risk of leaving costs to be mutualised in the event of their failure. Ofgem will be able to take timely action where suppliers are not managing risk effectively.
New checkpoints/milestones for suppliers will be introduced, determined by customer numbers and financial and compliance indicators, at which Ofgem will scrutinise their readiness for growth and ability to meet their regulatory obligations. If they are not, the regulator may ban them from taking on more customers.
Improved governance and increased accountability
This will include a requirement for energy retailers to ensure that relevant individuals with significant influence in the business are fit and proper to occupy their role (in line with criteria for being awarded a licence at entry).
Furthermore, there will be a new principles-based requirement for suppliers to be “open and cooperative” with the regulator.
Increased market oversight
Suppliers will be required to undertake an independent audit of their financial position and/or customer service systems and processes, at the request of Ofgem.
In addition they will have to maintain customer supply continuity plans (formerly known as Living Wills), so that their customers are protected and wider market impacts are minimised, should they exit the market. They must also promptly report changes in control of the business.
Final proposals for exit arrangements
Where suppliers do fail, to ensure that consumers experience minimal disruption, Ofgem is introducing new rules that will better reflect that the same standards that apply to suppliers also apply to administrators where they assume responsibility for a failed retailer’s debt book.
Retailers will be required to notify Ofgem if they are engaging in a customer book sale and the regulator will have a strengthened ability to ensure any such transactions to not cause harm to consumers.
The policies will come into effect from 22 January 2021, with the exception of customer supply continuity plans which will not come into effect until 18 March.