Ofgem reviews regulatory framework to boost innovation and enhance consumer protection
Press release
Publication date
Industry sector
Supply and Retail Market
Related information
- Ofgem to re-shape retail energy market regulation.
- Speed of market development means regulation must evolve to ensure consumers remain protected.
- Regulation will rely more on general principles to protect consumer and unlock consumer benefits from innovation.
- Energy suppliers failing to put consumers first will face tougher action.
Ofgem has today set out a way forward for how it will regulate the retail energy supply market to meet the needs of consumers now and in the future. It will place more reliance on principles and less on prescriptive rules to effectively manage the changes in the energy market. This shift aims to make regulation flexible enough to allow consumers to benefit from the investment in innovation in Britain’s energy market, while maintaining robust protection.
Moving to more principles and less prescriptive rules in suppliers’ licences will help newcomers enter the market and encourage suppliers to innovate more. This will close loopholes by forcing suppliers to move away from a box-ticking approach to complying with the rules and to think harder about how to best meet consumers’ needs. The onus will be on suppliers to put consumers at the heart of their businesses.
Ofgem began this direction of travel in 2013 with the Standards of Conduct, which already require suppliers to adhere to the principle of treating customers fairly or they could risk enforcement action. This approach has enabled Ofgem to drive up standards for consumers by conducting major investigations for poor customer service.
Dermot Nolan, Ofgem’s Chief Executive, said: “Moving towards regulating the market through greater use of principles is vital to unlock benefits for consumers and ensure they are protected from new risks. As the market evolves, we need to re-think the way we regulate the market. Just adding more and more detailed rules will mean consumer protection always lags behind market developments and risks stifling innovation.
“Regulations that rely on principles, supported by enhanced monitoring of suppliers’ activities, will allow those suppliers who treat consumers fairly the space to innovate; but those hoping to gain from misleading consumers or treating them poorly will find our approach very uncomfortable and will face tougher action and penalties.”
Building on the Standards of Conduct, Ofgem is consulting on whether further principles should be introduced, what prescriptive rules remain appropriate and how best to operate under the new approach. Stakeholders’ views are also sought on whether a more principle-based approach would better protect consumers’ interests by promoting responsible sales and marketing activities.
Notes to Editors:
1. In the Corporate Strategy published last year, Ofgem set out its intention to replace more of the detailed rules with high level principles and it has been working on this since. The first formal consultation has been issued today and stakeholders can contribute with comments on the proposed approach by the 31st March 2016.
2. Provisional findings from the Competition and Markets Authority (CMA) investigation of the energy market have highlighted the importance of regulation that enables innovation. Our work is aligned with the CMA’s direction of travel and it also interacts with the government’s initiatives to reduce the burden of regulation on industry, including the Cutting Red Tape review and Business Impact Target. The CMA is planning to reach its final decision by the end of April 2016.
3. Standards of Conduct
The standards of conduct came into force on 26 August 2013. They require suppliers and any organisations or individual that represent them, such as brokers or third party intermediaries, to ensure that each domestic customer is treated fairly. They cover:
- Behaviour: suppliers must behave and carry out any actions in a fair, honest, transparent, appropriate and professional manner.
- Information: suppliers must provide information which is clear, accurate and not misleading.
About Ofgem
Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.
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