Investigating Regulatory Breaches

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For an executive within an energy business, identifying a regulatory breach can be a gut-wrenching experience. Being told that your business has inadvertently breached the law, understandably raises concerns about the impact of the breach on your customers, stakeholders, and reputation.

The obligation to report

Businesses in various industries have obligations to report potential breaches to regulators. A failure to report a breach can itself be a breach, and such a failure will generally make matters worse. So businesses, including energy retailers, need to have clear processes in place to identify, assess, and report on potential breaches.

Mandatory reporting obligations are found in various industries. Energy retailers operating in National Energy Customer Framework, for example, have reporting obligations under the AER’s Compliance Procedures and Guidelines and further under s 273(2) of the National Energy Retail Law must:

establish and observe policies, systems and procedures to enable it to efficiently and effectively monitor its compliance with the requirements of the Retail Law, Retail Rules and Retail Regulations

Step One: Identify obligations.

The first step a regulated entity must take is to clearly understand all of the applicable regulatory obligations subject to a reporting obligation. Identification of obligations is critical to understanding the systems and processes a business must have in place for compliant operations.

In an industry such as energy retail, identification of regulatory obligations can be a daunting task, with countless regulatory instruments and derogations. Comprehensive training is tied to identification. If staff are to identify potential breaches, they must know and understand the obligations that apply to your business.

Identification of regulatory obligations

Compliance Quarter offers the Obligations Register Application (ORA): A straight-forward online system that maps all key regulatory obligations. Maintained by our regulatory experts, the ORA is the easiest way for energy retailers to identify regulatory obligations.

Step Two: Itentify potential breaches

Identification of a potential breach can take place by individual employees, by contractors and agents, and by automated system reports. Ideally, a business should make it as easy as possible to identify a potential breach.

To assist employees and contractors identify potential breaches, businesses should have a standardised form which collects information required for in-house counsel or legal officers to conduct an assessment. Such a form may be a simple word template or maybe an online form.

Identification should also be baked into systems such as customer management and billing systems. In the case of energy retailers, such systems should report on unbilled customers, customers who are potentially experiencing hardship, and missing records.

Step Three: Assessment

Assessment of potential breaches in a timely manner is critical. For energy retailers, certain breaches must be reported 2 business days following identification. Potential breach reports should be assessed by internal or external compliance or legal professionals.

The assessment process involves the consideration of applicable regulatory obligations and consequential reporting consequences. Records should be maintained of steps taken in the assessment process that may involve interviewing relevant employees, review of records, and other activities

Step Four: Report and remediate

Once a potential breach has been assessed, it may need to be reported. Reports to regulators should contain as much detail as possible on the potential breach, the steps taken to assess the potential breach, the impact and the consequences of the breach. Reports should be reviewed by the board of the relevant business as their involvement is critical.

Remediation may involve contacting and explaining the breach to affected customers, resolving underlying causes, and implementing additional controls. Professional legal advisors or in-house counsel should be involved in each step.

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