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Energy suppliers to face tough new financial checks

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Energy firms could face tough new ‘fit and proper’ checks under new proposals from the regulator Ofgem.

The rules aim to drive up customer service standards and reduce the risk of suppliers going bust following a spate of failures in recent months.

As part of the new checks, Ofgem would request independent audits of suppliers’ customer service operations and financial status.

Fast-growing suppliers would have to demonstrate they can serve additional customers effectively, while remaining financially viable. If they fail the checks, Ofgem would ban them from taking further customers on.

Suppliers would also have to set out to the regulator what would happen in the event of their failure, including any barriers to an ‘orderly exit’. This could include the likely costs faced by other consumers and disruption to services for their customers.

Mary Starks, executive director of consumers and markets at Ofgem, said: “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.”

The proposals follow new rules for start-up energy suppliers, introduced in the summer.

New energy suppliers must pass tough tests before receiving a licence, including showing they can adequately fund their operations for their first year, and showing their intentions to provide a proper level of customer service.

Stephen Murray, energy expert at MoneySuperMarket, said: “The supplier failures in the last 18 months highlight that lessons have to be learnt and reforms introduced across the market to tighten up processes and ensure suppliers are trading responsibly and protecting customers.

“We can’t ignore the cost that supplier failures are putting on the energy market and the existing supplier base. Ultimately these costs will wash down into higher customer bills and we have to do all we can to minimise the amount UK households are paying.

“Ultimately this has to be policed by the regulator and today’s suggested reforms are welcome and, like the reforms for new entrants recently introduced, definitely not before time.”

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