New tendencies in enforcement by public regulators in the UK: voluntary redress and consumers in the energy sector

Autor:Maribel Canto Lopez

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Maribel Canto-López


University of Leicester

SUMMARY: I. INTRODUCTION. II. NEW TENDENCIES IN REGULATION IN THE UK. 1. The Regulation Revolution in the UK. 2. The Redress Powers of Regulators. III. OFGEM’S NEW ENFORCEMENT TENDENCIES AND CONSUMERS. 1.Ofgem’s Enforcement Reform. 2. Voluntary Redress in Sectoral Cases. 3. The Future of Allocating Voluntary Redress. IV. CONCLUSION


Regulation is important for the EU, particularly in the internal market1. The Organisation for Economic Cooperation and Development (OCDE) showed interest on Regulations and consumer legislation across Europe; hence, the evaluation of consumer protection in enforcement practices by Regulators2. New suggestions of tools for Regulators were introduced one of those was redress. Since 2007 the OCDE was engaged in consumer redress policies3. There was a new model of collective redress in Europe4; it was born out of the need to find an alternative system to Courts, when consumers needed to recover small quantities after a dispute. But, the only model for collective redress available was the ‘American class action’; however, European countries were suspicious about the negative effects

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of the American private class action5 and the different context in which it was applied6. Accordingly, the European model for collective redress was somehow different. Its three main features were: firstly, a strong support for voluntary settlement; secondly, the overview and aid by public authorities and lastly, a rejection of litigation-based solution that should be the last resort7. In fact, lately European consumers are starting to feel, more often, a ‘justice’ provided by some form of dispute resolution system rather than in a Court scenario8. The civil justice landscape in Europe was open to changes, and Regulators were considered instrumental to help with compensations9. The idea of circumventing the Courts was shared by governmental approaches towards Public Regulators, but also towards Alternative Dispute Resolutions (ADR)10; the latter for private law claims11. In this chapter we are concentrating on Regulators and their redress under sectoral powers for regulatory breaches; but a glimpse at another important consumer redress tool is offered, such as ADRs12. ADRs have been promoted by the EU13, and this instrument of dispute resolutions, may arguably, suit low-value and high volume disputes common in ‘consumer-business relationships14. However, critiques on ADRs come from two fronts. On the one hand, those complaints based on ADRs neglecting judicial scrutiny’15 and reducing ‘access to justice’16 in the quest for ef-

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ficiency17. On the other hand, those criticisms of ADR on a more practical sense, denunciating a system in which consumers find it hard to get redress, due to confusion, gaps and overlaps in the ADR actual provision18.

Regulators do not only help redress but are being extremely efficient at it, they deliver in a way that can be quicker and cheaper; particularly when there are many consumers affected and a ‘widespread business behaviour is involved’19. Regulators through their enforcement policies could deliver collective redress, in many different ways as we will see further20. Keeping powers with public bodies brought two advantages; on the one hand, costs will not be reverted to private claimants or consumer authorities; and on the other hand, there is an ‘accountable’ oversight21. The end result was to have a ‘Public Regulator to achieve a Private Resolution’22. In 2014 the OECD issued the Best Practice for Regulatory Policy23. However, as each country is different, it will be difficult to impose one standard that will fit all throughout all the OCDE members24. The UK went alongside these OECD’s recommendations; and also lead the way in Better Regulation25. The idea of Better Regulation aimed at reducing costs in two fronts, from the Public authorities and from the Businesses. In fact, Better Regulation was about creating improved regulation principles at the heart of

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EU policy-making processes, so there would be better results for citizens, businesses and public authorities26.

2New tendencies in regulation in the UK

In the UK there are many Regulators27, which were influenced by Better Regulation28. Yet, the UK general sense regarding EU Consumer Redress was that there should be a better way than using private collective litigation29. The UK possibly prefers that Redress and Restoration should be in the hands of Public enforcers, and not in the hands of consumers to go through private litigation30. A crucial feature of the New Regulation in the UK is the idea that deterrence is an outdated notion and redress and restoration should lead the way31. The idea is that Regulation is ‘about the attempt by the State to alter behaviour that will help the community’, more than an idea of punishment32. Furthermore, in 2011 there was a discussion regarding the transformation of Regulatory Enforcement, with an aim to ‘create a new relationship between regulators and businesses where the default setting is trust rather than distrust’33. There may be those suspicious of Regulators being too close to businesses and the danger of the businesses ‘capturing’ the regulatory enforcers. However, Hodges states that in the UK there are measures in place to avoid that risk; firstly, Regulators are operated independently from the government; secondly, the Regulators as public bodies are inspected by the National Audit Office; thirdly, the ‘professional ethos’ of public agencies in the UK is very fierce34; fourthly, there is oversight by the legislators the regu-

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lated community, the media and general public, particularly consumer bodies; and lastly, all enforcement decisions by regulators can be subject to judicial review35. In sum, the UK is clearly moving away from a Regulation of ‘command and control’ against businesses towards one that is more about collaboration between Enforcers and the businesses36. This will in turn not only help market efficiency, but more importantly consumer protection.

1. The Regulation Revolution in the UK

The UK is at the forefront of Regulation in Europe37. It was clear that Regulators needed better tools. To help them in the process of renovation the government commissioned the Hampton Report and the Macrory Review. Hampton led a review of Public Regulators Inspections and their Enforcement Policies, with an aim to reduce the ‘regulatory burdens on businesses’38 . Clearly there was a need to reduce administrative burden in enforcement and a better use of the resources available39. Macrory, on the other hand, leaned on the idea of changing the penalties system, as regulators focused too heavily on prosecution or threats to prosecute40. Macrory stated: ‘I am aware that monetary penalties may not be effective in every instance and I want to ensure that regulators have access to a broad range of tools’41. Using Hampton and Macrory as a guide the Regulatory Enforcement and Sanctions Act 200842 (RESA) was passed43. The RESA 2008,

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talked about enforcement undertaking44, and how the UK government recognised the need for businesses to be allowed to offer ‘creative measures’ after regulatory non-compliance, particularly when those were innovative and ‘restorative’45.

In the environmental sector there is a good example of an alternative method, through enforcements undertaking; it this model the regulated business promise to the Regulator to do some actions instead of a punitive sanction or criminal charge46:

‘A regulator cannot force an undertaking upon an offender and there is no right of appeal against the order itself (as there is against other forms of civil sanctions) as it is voluntarily entered into. One incentive for the offender to enter into an undertaking is found in section 50(4) of the RES Act, where it is determined that, unless an offender has failed to comply with an undertaking, he/she may not be convicted of the relevant offence, be subject to a fixed monetary penalty, nor be subject to other enforcement sanctions. By proposing an undertaking, the offender thus potentially avoids the stigma of a criminal sanction while, at the same time, retaining a significant influence on the enforcement action insofar as the offender suggests the details.’47

Interestingly, Pedersen points out that out of 58 undertakings, only eight were self-reported; this means that businesses still need the nudge of notification by the Regulator of some kind of investigation or notice of any kind of action48.

Also of interest is the query about where the money (normally offered in the undertaking) goes or who controls what is it spend on?49 Ofgem as we will see later in this chapter may help with its on answer to allocation of redress money. To finish with this method of undertaking, a crucial point is the idea of businesses reflection over the undertaking process, this is definitely more than just deterrence; this process goes towards changing the behaviour of businesses50.

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In general, redress or compensation has meant that public regulators have now a new function that of public enforcers of ‘restorative justice’51. With this backdrop, in the Regulatory camp, many regulators reviewed their Enforcement and Penalties policies, a wave that pushed reforms on a ‘sector-by-sector basis.’52

Regulators were now overseeing redress. According to Hodges, Regulators were the key to closing the gap between successful enforcements and consumers getting a satisfactory compensation after the breach53. The UK government encouraged Regulation...

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