Companies to be charged with assessing senior leaders for fitness and propriety

New and existing water company leaders will need to pass fitness and propriety tests set by Ofwat under new Special Measures Act powers to be implemented from 1 April 2026.

Ofwat is consulting until 23 October on enacting a rule that will require all companies to assess whether those being appointed in senior positions have the necessary skills, experience and financial expertise, based on three core standards:  

• Honesty and integrity – key elements of a person's character that are of fundamental importance for those in senior roles on boards, the assurance of which can assist in improving public trust in the sector. 

• Knowledge and experience – the relevant knowledge to undertake their roles, recognising a need to understand the water sector, but also acknowledging that a board requires a broad range of other knowledge and experience such as in finance, human resources, and other sectors. 

• Financial soundness – that the person in the role has a sound financial record.

The consultation also clarified a number of positions consulted on in October 2024, including that individuals: 

• Must disclose any unspent criminal convictions particularly relating to matters of dishonesty, fraud, financial crime or crime related to the water industry (rather than any unspent convictions of any nature, which could have brought things like minor motoring offences into scope).

• Have not been the subject of any adverse finding or settlement in regulatory or insolvency proceedings (rather than general civil proceedings which could wrap in the likes of divorce).

• Have not been disqualified as a director of a company in any jurisdiction. 

• Must demonstrate by experience and training that they are suitable to perform the function that they are intended to perform (rather than have water industry experience explicitly).

  
  

The fit and proper rule will apply to CEOs, executive and non-executive directors and other senior roles as Ofwat sees fit. Undertakers will be responsible for assessing individuals as part of recruitment and annual reappraisals, and for reporting to Ofwat annually and in near real time for new recruits or changed positions.

Ofwat intends to extend the rule to New Appointments and Variations on 1 April 2027.

It acknowledged the Cunliffe Commission had proposed a new regime for senior accountability but said it considered it important to implement the regime under consultation in the meantime.