As energy retailers expand their customer base and operations, ensuring ongoing compliance with regulatory obligations can become increasingly challenging. A key risk is “compliance atrophy” – where initially compliant documents, processes and systems slowly deteriorate and waste away over time if not regularly monitored and reviewed.
What is compliance atrophy?
Compliance atrophy is typically a result of documents, processes and systems being ‘updated’ or ‘reworded’ to reflect changes in focus for the business and input from other stakeholders including marketing and sales teams.
Oftentimes, a business incorrectly assumes that provided that the original intent is retained, a document, process or system will remain complaint. That is not the case. In energy, and in other industries the regulatory framework is ultra specific in what it tells businesses to do. For example, the ‘better bills guideline’ sets out what information needs to be included in energy bills, what wording to use, what emphasis to place on different information, and the order that information is presented. If an energy retailer were to seek to depart from the prescriptive requirements, even with the intention of making bills actually ‘better’, without regulatory approval, they will be in breach.
At the same time that businesses are trying to improve their documents, processes and systems regulatory obligations are becoming more prescriptive. As regulators continue to see the same issues arise in an industry, they action changes that result in more regulation. The level of regulation in industries such as energy only travels in one direction.
The importance of assurance reviews
Assurance reviews play a vital role in identifying and rectifying compliance gaps from compliance atrophy. Ideally, of course, compliance would be involved each time an update to a document, process, or system is updated so that the update can take place in conformance with regulatory obligations.
Frequent reviews are important to ensure that problems do not develop over time. Under the Australian Energy Regulator’s Compliance Procedures and Guidelines, energy retailers have strict obligations to report certain breaches immediately, quarterly or half-yearly depending on the severity and nature of the breach. The guidelines require retailers to have “policies, systems and procedures” in place to efficiently monitor compliance. As a retailer grows, these compliance frameworks need to scale and adapt accordingly.
Without robust assurance processes, it’s easy for updated documents, changed operating procedures or system enhancements to inadvertently breach compliance requirements that were previously satisfied. The longer assurance reviews are deferred, the greater the risk that multiple issues will emerge, requiring substantial remediation.
Signs of compliance atrophy
Common signs of compliance atrophy setting in include:
- Key compliance documents not being regularly reviewed and updated
- System changes implemented without checking regulatory impacts
- Compliance training not keeping pace with staff turnover and role changes
- Incident logs and compliance registers not maintained or actioned
- Self-reporting of breaches falling behind required timeframes
Proactive assurance reviews are essential to detect these warning signs early and prevent them from crystallising into material breaches (they may be reportable in any event). Options include internal audits, external assessments, sample testing and mystery shopping. Critically, accountability for actioning review findings must be clearly assigned and tracked.
Failing to comply
The AER has strong enforcement powers, including seeking significant civil penalties, for retailers that fail to report breaches within prescribed timeframes. Investing in a systematic assurance programme is not only a regulatory imperative for growing retailers, but also supports customer trust, operational efficiency and corporate reputation. Detecting compliance gaps early is far less costly than letting them multiply and magnify.
In an industry facing frequent regulatory change, assuming that current compliance frameworks will naturally remain fit-for-purpose is a dangerous mindset. Only through vigilant assurance reviews can energy retailers achieve sustainable growth while keeping their compliance obligations in check.
Author: Connor James
