Our response to Ofwat’s fitness and propriety rules consultation

We welcome the opportunity to respond to Ofwat’s consultation on applying a new fitness and propriety rule for water company senior management, to comply with the Water (Special Measures Act) 2025.

Overall position

We welcome Ofwat’s proposal to introduce a Fitness and Propriety rule for directors of water and wastewater companies. Consumers need confidence that senior leaders in this sector are competent, accountable, and act with integrity. The principle is sound and aligns with the need to rebuild trust in the industry.

We support the proposed rule, its scope and exclusions in principle, but its success will depend on careful implementation. Ofwat should provide clarity, avoid unnecessary duplication, protect board diversity, and ensure that costs are proportionate. Above all, the rule must be part of a wider programme to deliver the outcomes consumers expect and deserve.

Key concerns and recommendations

Clarity and consistency

The definition of ‘fitness and propriety’ (honesty, integrity, competence, financial soundness) is broad. Without very clear guidance, companies may interpret the rule inconsistently when carrying out the FPPT (‘fit and proper person test’).

This risks uneven standards across the sector so Ofwat should provide detailed guidance and case studies to support consistent application.

Recruitment and diversity of talent

To mitigate against any risk of deterring people with diverse backgrounds, skills, or lived experience (i.e. the kind of voices consumers need in boardrooms), Ofwat should monitor the impact of these new rules on board diversity so that valuable candidates are not excluded unnecessarily as a result of the new tests.

Duplication and overlap with other rules

Directors are already subject to requirements under company law, the FCA, and insolvency law. So without coordination, there is a danger of duplication, confusion and unnecessary costs. Ofwat should clarify how its rule interacts with existing regimes and avoid duplicating checks already carried out effectively elsewhere.

Transition timetable

The requirement for existing directors to be assessed by April 2027 is reasonable, but consumers could be negatively affected if companies experience instability at senior levels in the intervening period. Ofwat should engage closely with companies during the transition to manage risks and provide flexibility where genuinely needed, as well as the evaluation of how the rule is applied in practice after 2027.

Enforcement and transparency

It is not clear how Ofwat will respond if a company concludes that a director is fit and proper but Ofwat disagrees. Ofwat should set out clearly how disagreements will be handled, and ensure processes are fair, transparent, and subject to appeal.

Public trust

The rule is a step in the right direction, but governance reforms alone will not restore public confidence. Consumers want to see tangible improvements in service, environmental performance, and value for money. So this rule should be seen as an integrated part of a wider package of reforms that deliver change in the real world.