Ofwat proceeds with non-binding code for water brokers

Regulator says TPI code principles through non-binding guidance is the most effective approach

Ofwat will proceed with plans to implement a non-binding code of conduct for third party intermediaries in the open water market.

In its decision document, published today, the regulator said it does not believe it is appropriate to require water and wastewater retailers to work only with third party intermediaries (TPIs) accredited to a code of conduct given its current powers.

It said this option could result in a proportion of the TPI sector being forced out of the business retail market if they chose not to sign up to a TPI code of conduct, regardless of whether that TPI had engaged in poor practice.

It could also potentially limit new market entrants and place cost burdens on industry that would be passed onto customers.

Ofwat said: “At this point, and given our current powers, we believe that the [customer protection code of practice] together with us issuing our TPI code principles through non-binding guidance is the most effective and proportionate approach.”

However, the regulator will engage with the UK government to become a designated enforcement authority for the “business protection from misleading marketing regulations”, as Ofgem is in the energy market. This gives a regulator limited power to act against misconduct by TPIs.

It will also encourage TPIs to sign up to become members of a voluntary code of conduct which follows its principles, and will highlight which TPIs have signed up to such codes.

In its consultation document, published last month, Ofwat called for the power to regulate brokers and TPIs. It said evidence from other sectors suggests formal powers to regulate TPIs and their activities will be “important if it is to be able effectively to ensure business customers are treated fairly”.

The document said “there is a risk that the activities of some TPIs may cause customer harm, especially for smaller business customers”.

The regulator proposed two alternative options for implementing its principles: non-binding guidance that could be used for any TPI code of conduct established by existing or new accreditation schemes; or a requirement on all water and wastewater retailers – enforced via their licence conditions – to only work with accredited TPIs.

Some respondents to the consultation suggested that only direct regulation of TPIs by Ofwat would be sufficient, or at the very least an Ofwat-led accreditation scheme was needed to enable customers to understand which TPIs were appropriate to engage with.

Another suggestion put forward was for any code of conduct to be run by an independent third party that would monitor and ensure compliance with the code.

The regulator said this approach is “an available option” that respondents may wish to pursue, but that it would not accredit or prioritise such a code over any other, given its current powers.

Source: Ofwat