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Why now? Regulation in the TPI market

Molly  Lloyd Molly Lloyd Analyst
18th August 2020

Ofgem published its long-awaited policy proposals on 29 July following a review of the microbusiness sector. These build on its initial consultation from May 2019 and look to ensure that microbusinesses can access a competitive market and secure adequate levels of protection. The approach will be a defining moment for the sector with measures that act in the manner of a Code of Practice without there being one. Instead, the solutions put forward in the microbusiness review would bring an indirect mandated change to the Third Party Intermediary (TPI) through the supply licence. Here, we take a look at the impacts on the TPI sector, highlighted in our third quarterly update of the Third Party Intermediaries in the Business and Industrial Supply Markets report.

Many of the proposals (detailed in figure 1) are centered around TPI practices, with Ofgem stating that “stakeholder views and evidence point to dissatisfaction with some brokerage services and poor practice by a minority of TPIs.” These issues have been discussed as far back as 2013, when Citizens Advice raised concerns about a lack of transparency in the market, especially on commission levels and supplier coverage and a poor quality service provision leading to sub-optimal advice. Attempts to mitigate these issues so far, have been unsuccessful.

When it comes to the package of proposed policies, Ofgem’s primary focus is on adapting the regulatory framework for suppliers to account for the behaviour of TPIs. The most important is a new TPI conduct principle which would introduce a principles-based requirement for suppliers to ensure TPIs they work with conduct themselves appropriately and in a way that treats customers fairly. Ofgem proposes extending relevant parts of the existing ‘Standards of Conduct’ to achieve this.

Ofgem also proposes introducing a requirement for suppliers to only work with TPIs signed up to an alternative dispute resolution scheme, which would follow a framework similar to that of an Ombudsman. This seems to be a lesson learned from Ofgem’s TPI Code of Practice (TPI CoP) development, which as it would have been voluntary, struggled for agreement on how it would be funded. Suppliers were unwilling to pay to regulate a market that they were not commercially active in. There is an opportunity for TPIs to lead the conversation in developing the new framework that will determine practices across the sector, with the alternative being a supplier led approach.

Other proposed measures include the disclosure of commission by suppliers, on account statements and at the request of the microbusiness customer. The regulator cited instances where microbusinesses were unaware of the TPI costs and reasoned that provision of this information will reduce overall consumer harm by enabling consumers to make informed choices about TPI services. It also acknowledges that including additional commission payment data may increase the complexity of contract information sent to consumers and suggests this could be an issue for some.

It is understandable that Ofgem feels the need to do this because transparency has been an issue in the TPI market for more than 20 years. However, we are concerned about mandating suppliers and think TPIs should disclose their own charges to their customers, therefore reducing an extreme scenario whereby this is used in marketing to favour direct sales, against TPIs by suppliers.

Ofgem’s review builds on the extensive work alongside that of Citizens Advice and the Competitions and Markets Authority over the past decade or so, finding a way to achieve some long desired objectives. While many industry stakeholders have taken a cautious approach to the new consultation, many are optimistic that trust, at least in the microbusiness sector, will increase.

More information on Ofgem’s review of the microbusiness market, alongside updates on how COVID-19 is impacting the TPI market can be found in the latest update of the TPIs in the Business and Industrial Energy Supply Markets report.

About Third Party Intermediaries in the Business and Industrial Energy Supply Markets

Third Party Intermediaries in the Business and Industrial Energy Supply Markets maps the business energy supply markets and the role of TPIs in them. It is a subscription service including an annual baseline report and quarterly updates. It also profiles over 200 TPIs and ranks them using the Cornwall Insight Indexes for SME and I&C sectors.

If you are interested in subscribing to our TPI report, please contact m.lloyd@cornwall-insight.com