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  • by Trevor Loveday

Investors question Ofwat's independence and transparency

Two out of five investors responding to a recent poll questioned Ofwat’s independence from government, disagreed that the regulator listens to investors and rejected the assertion that Ofwat was proportionate, transparent and targeted in its regulation.

The findings from Ofwat’s later annual investor survey were based on responses to seven assertions about the regulator’s performance from investors in private equity, listed equity and debt markets. Those assertions, and their overall average disagreement scores across all respondents were:

  • Ofwat regulates in a proportionate, consistent, transparent and targeted way, choosing the most appropriate tools from within a wide range of regulatory responses. (39%)

  • Ofwat is independent of government(s). (41%)

  • Ofwat's policies are well-considered and consistent. (29%)

  • Ofwat is listening to investors. (41%)

  • Ofwat engages with the investor and credit-rating communities in an open and transparent way. (16%)

  • Ofwat engages consistently and sufficiently with all types of investment stakeholder (debt, equity and analysts). (15%)

The findings show the bulk of the critical responses came from private equity investors. Uniformly 73% of all 15 of private investors respondents disagreed or strongly disagreed with all of the seven assertions that formed the basis of the survey. Ofwat's regulatory framework aligns the interests of regulated companies and their investors with those of customers over the long term. (34%)

In contrast the 31 listed equity investors largely agreed with each assertion with five of the assertions drawing 77-87% agreement or strong agreement. The least supported assertion at 58% was Ofwat is listening investors with 65% agreeing that Ofwat was independent of government.

Debt investor agreement with the assertions fell between that of the equity investors.

The “regulatory alignment” and “proportionate” assertions got 50% and 45% disagreement respectively from the debt investors with the “well-considered” and “listening to investors” assertions each drawing 35% disagreement. Only 20% of the debt group said Ofwat was not independent of government. The engagement assertions – relating to finance and other stakeholders – were well supported by debt investors with 70% agreeing on engagement with the finance sector and 55% on other stakeholders.

Source: Ofwat

The scores out of five – corresponding to five levels of agreement from strongly disagree to strongly agree – have fallen each year for all seven assertions since 2017 (see graph). The agreement with the independence from government assertion had fallen from 71% in 2017 to 59% in the current survey while responses to the well-considered and consistent assertion had dropped from 74% to 63% over the same period.

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