In July 2022, several energy companies criticised Ofgem over their recently published report on several firms’ direct debit levels. The report identified moderate and minor weaknesses in several energy companies that needed to be rectified. A claim that several companies questioned, expressing strong disagreement with the regulator’s findings.
The disparity between Ofgem and the energy suppliers highlights the difficulties organisations face in meeting compliance regulation requirements. It suggests that energy suppliers lack appropriate mechanisms to incorporate new regulatory updates into their internal processes. This struggle hinders their ability to adapt to the latest rulings, opening them up to fines and other problems with key regulators.
Resolving this problem requires organisations to re-examine the processes they use to anticipate regulatory updates. In this blog, we address this issue and suggest how organisations can rectify this process to improve their ability to respond to the latest updates while avoiding fines and warnings from key regulators.
The reasons behind non-compliance and how to resolve it
Understanding the new regulatory updates and what they entail
It is surprising to note how many organisations misunderstand their compliance regulations. In fact, several organisations have violated compliance requirements, not because they ignored them, but because they have misunderstood the requirements, only understanding their error after it has been flagged by an external regulator. This is a problem many energy suppliers are facing at the moment.
To rectify this situation, compliance teams have to be clear on the requirements and responsibilities of an organisation before delegating responsibilities to other teams.
One way to resolve the situation is to develop direct lines of communication with a regulator. While compliance teams can still do most of the legwork, they can contact a regulator to ensure that any internal operations fall in line with the regulator’s new expectations.
Alternatively, compliance teams can opt for an automated approach by leveraging compliance mapping technology. Using this option would allow organisations to make direct connections between new updates and internal rules, which would allow them to answer several critical questions related to relevance.
Adopting these methods would give organisations a far better chance of understanding regulation and prevent misunderstandings that lead to a compliance violations.
Having the capacity to discharge or spread obligations
While understanding how the new rules work is critical, compliance teams should also have the capacity to discharge these obligations to relevant business units. Yet, completing this task within the complex structures of large energy companies can be particularly challenging to pull off. Compliance teams are just one of many business units within an organisation, and getting obligations to the right people at the right time is a massive task to pull off.
Organisations can resolve this issue to some degree by automating the process. Most RegTech solutions come with several features that would make it easier to spread obligations across relevant departments. For example, compliance teams can record commentary, providing useful information such as due dates and rule status in real-time.
Moreover, compliance teams can even tag relevant individuals and send notifications, informing them of changes and reviewing them when necessary. This can help streamline communication between different business units, making it easier to dispatch responsibilities relevant across the entire organisation.
With communication streamlined, compliance teams will have a much easier time dispensing compliance responsibilities across the organisation. This improves adoption rates and ensures that internal operations are up-to-date, preventing costly fines.
Developing the willingness and capacity to meet compliance obligations
While organisations understand that the will to meet regulatory obligations is critical for improving adoption rates in compliance regulation, they have yet to find a way to turn this understanding into a system that can consistently deliver results.
Regulators have penalties in place for non-compliance, but, there are not many systems to reward compliant behaviour. Organisations can fill in this gap by using incentives to encourage business units to take on compliance through a reward system.
For example, we are seeing a similar development in different industries. For example, in finance, key regulatory organisations have established a monetary system that rewards employees who do business within their compliance programs.
Rewarding compliance could be the critical factor that encourages adoption rates within the energy industry because the push for green energy requires organisations to make significant changes to their internal operations and where they will only gain benefits in the long run. Incentivising compliance can help organisations meet the latest updates in the energy industry.
Improving compliance adoption rates benefits organisations and regulators
By developing a thorough understanding of compliance regulations, having the capacity to discharge responsibilities, and incentivising compliance, organisations can improve their ability to respond to compliance updates and successfully stay compliant.
This is critical because as the energy industry undergoes a rapid change within a short time, energy companies are struggling to keep up with the rate of updates published by regulators regularly. Examining internal processes and understanding why organisations might be struggling to meet the new standards can prevent costly penalties and fines down the line.
Even organisations that have been able to meet these standards can stand to optimise the mechanisms they use to respond to compliance updates. This would enable organisations to optimise their regulatory change management processes and thrive during a time when the industry is undergoing a massive change.