Ofgem proposes financial checks and tests for existing energy suppliers

It said increased competition in market has benefitted consumers with cheaper deals, put pressure on incumbent suppliers to improve their customer service and encouraged innovation.

However, since the beginning of 2018, 14 energy suppliers have collapsed, many of which were sanctioned over their level of customer service and prevented from taking on new customers as a result.

Ofgem said it wants to ensure that if this happens, “customers are protected and the impact on the wider market is minimised”.

It already introduced tougher entry requirements for new providers in the market, but it is now proposing regular independent audits of suppliers’ customer service operations and financial status.

Under the plans, checks would be introduced for growing suppliers before they hit certain thresholds of customer numbers requiring them to ensure they have the operational capability to effectively serve their customers. If they fail the checks, they would be stopped from taking further customers on.

The regulator added it is also considering further ongoing ‘fit and proper’ requirements for suppliers, to ensure those in senior management positions are fit to carry out their duties, and a new principle for suppliers to be open and cooperative with the regulator.

Mary Starks, executive director of consumers and markets for Ofgem, said: “Our regulatory regime needs to be effective and proportionate in protecting consumers, while continuing to facilitate competition and innovation. At this stage in the transition to a net zero emissions economy it is more important than ever that innovators can enter the market and prosper, driving benefits for consumers.

“The new proposals will create more accountability in the market, require more responsible and appropriate behaviour from suppliers in the market and reduce the risk and costs to consumers associated with supplier failure.

“In the event a supplier fails, the changes will also strengthen the ‘safety net’ and improve the experience of customers when they are transferred, so that consumers can be reassured that whatever happens they will be properly protected.”