On 20 September 2024, the Department for Energy Security & Net Zero (DESNZ) issued a consultation paper setting out proposals to regulate third-party intermediaries (TPIs) in the retail energy sector.

Background

TPIs in the retail energy sector can be broadly defined as a third-party that exists to help a consumer choose – such as comparison websites, energy brokers, and bill aggregators. This list is not exhaustive and given the changing nature of the energy market, the Government expects that other types of TPIs will emerge and develop in response to market reforms or technological change.

The regulatory oversight of TPIs within the energy market primarily consists of voluntary codes of practice, Ofgem licence conditions on energy suppliers, and consumer protection regulations. However, the regulatory oversight differs by individual types of TPI.

The consultation paper follows Ofgem’s Non-Domestic Market Review in July 2023 which highlighted problems with the TPI sector and suggested the need for government intervention to directly regulate TPIs. The Government believes that a comprehensive regulatory framework encompassing TPIs would fortify consumer protection and bolster trust, whilst also promoting competition. This is because a standardised regulatory landscape would offer stability within the market, preventing annual piecemeal changes whereby TPIs are constantly having to adjust their practices.

Consultation

In the consultation the Government is consulting on making TPIs in the retail energy sector subject to possible compulsory regulation which would align it more closely with financial services. The intention, if implemented, would be to capture energy brokers, price comparison websites and “bill splitting companies”.  

The Government’s preferred options are to go for a general authorisation regime, rather than a licensing style regime. The Government believes that a general authorisation regime would meet three main outcomes: appropriate enforcement capabilities, suitable levels of transparency, and the adoption of a regulatory framework that complements existing TPI regulations within and outside the energy sector. Potential design principles for the general authorisation regime include transparency and accuracy, treating customers fairly, clear route for dispute resolution, appropriate data protection arrangements, consideration of net zero and energy efficiency targets and training, governance and compliance.

As for a regulator, Ofgem, the FCA and a new regulator are all mentioned. The Government notes that Ofgem has experience with some forms of TPIs such as brokers in the non-domestic space and soon the licence of load controllers. The FCA regulates TPIs (e.g. price comparison websites, insurance brokers) operating in the insurance market and therefore has expertise but does not have experience of the energy market. An entirely new regulator for TPIs may be disproportionate.

For any authorisation regime, new primary legislation would be required to provide new powers to a regulator and set out the intention of the regime.

Next steps

The deadline for comments on the consultation paper is 15 November 2024.

DESNZ will issue a response in due course after the consultation has closed.

If the Government decides to pursue the proposal of regulating TPIs – including through its preferred option of a general authorisation regime – the response will include details on how it proposes to do this.