Ofwat has launched a new consultation on its proposals to introduce fitness and propriety tests for those in senior roles at water companies.

The new rule will require all companies to assess whether those being appointed in senior positions, including at CEO level, have the necessary skills, experience and financial expertise.

The Cunliffe report published in July recommended that a new regime for senior accountability for water undertakers be established by the UK and Welsh Governments, and that "a streamlined senior managers regime should be introduced, covering a narrow set of individuals: Chair, Chief Executive Officer (CEO) and the executive level leaders with overall responsibility for finance, meeting environmental standards, and the company [water undertaker's] compliance with licence conditions".

Ofwat says in the consultation paper:

“Ofwat considers it important to proceed with its implementation of the Fitness and Propriety Rule while awaiting UK and Welsh Governments' decisions on the IWC recommendation and any future legislation to enable its implementation…

“This proposed Fitness and Propriety Rule does not constrain either the UK or Welsh Governments regarding their decision on the IWC recommendation. If the UK Government and Welsh Government accept this recommendation, Ofwat will consider how the Fitness and Propriety Rule supports a future senior managers regime for the water sector.”

Scope covers Executive and non-Executive Directors

The new rule will require all companies to assess whether those being appointed in senior positions, including at CEO level, have the necessary skills, experience and financial expertise.

Scope covers Executive and non-Executive Directors. The Rule uses the term "Directors" defined as meaning any person who is a member of the Board – which presumably also extends to the Chairman.

Issues include whether an individual has been responsible for, contributed to or facilitated any serious misconduct or mismanagement - whether unlawful or not

Issues the companies will be expected to take into account include:

• Whether the individual has any unspent criminal convictions in any jurisdiction, particularly relating to matters of dishonesty, fraud, financial crime, or crime related to the water industry
• Whether the individual has been a financial director or otherwise concerned in the financial management of a business that has gone into insolvency, liquidation or administration - including special administration - while the individual had been connected with that organisation or within one year following that connection.
• Whether the individual has been disqualified from acting as a director of a company in any jurisdiction.
• Whether the individual has been responsible for, contributed to or facilitated any serious misconduct or mismanagement (whether unlawful or not) in the carrying out any regulated activity, in any jurisdiction, particularly in the water sector.
• Whether the individual has been refused, had revoked, restricted or terminated any form of authorisation, or had any disciplinary, compliance, enforcement or regulatory action taken by any regulatory body in any jurisdiction whether as an individual, or in relation to a business in which that person held [a senior role].
• Whether the individual has been the subject of any judgment debt or award, in any jurisdiction, that remains outstanding or was not satisfied within a reasonable period.

The rule is based on three core standards: 

• Honesty and integrity – is essential for those in senior roles.   

• Knowledge and experience –individuals must reasonably demonstrate, through their experience and training, that they are qualified and well-suited for the role they are applying for.

• Financial soundness – the person in the role must have a sound financial record. 

Companies will be required to provide Ofwat with regular updates for new appointments

Companies will be required to provide Ofwat with regular updates for new appointments to relevant senior roles and an annual summary of the re-assessment of existing senior role holders’ compliance with the rule.

The proposed Fitness and Propriety Rule will require water companies to:

• put in place processes to assess the fitness and propriety of applicants to, and existing holders of, senior roles;

• assess those applicants and existing role holders by having regard to the Rule standards, (to be known as a fit and proper person test) which cover the areas of honesty and integrity; knowledge and experience; and financial soundness;

• report to Ofwat on the assessment process for individuals, on the individual assessments and annually to confirm compliance with the rule;

• ensure a process for assessing if the circumstances of an individual holding a senior role change meaning that they may no longer continue to meet the fit and proper person test.

Ofwat acquired new powers under the Water (Special Measures) Act 2025, including banning bonuses for underperforming water company bosses and requiring companies to involve their customers in decision making. This consultation on fitness and propriety is a further component of the Act’s powers.

The policy statement published by the Government in February 2025 explaining why the Water Special Measures Act was needed says:

“Where individuals fail to meet relevant standards, companies will need to show how they will bring themselves back into compliance. This could include training for senior individuals or taking appropriate remedial action. Where breaches are severe, companies may need to reconsider individuals’ suitability for their roles.”

Ofwat “appropriate course of action, which may include terminating their employment”

Ofwat comments in the consultation paper:

“We consider that given the existing application of fitness and propriety requirements across other sectors, this is not a new concept for those potentially interested in applying for board level roles, and our proposed design and refined scope of the proposed FPPT should not adversely impact the recruitment pool…..

“If any existing persons in senior roles could not comply with the requirements of the FPPT, undertakers would need to follow appropriate processes under employment law before determining the appropriate course of action, which may include terminating their employment”

Ofwat says it will also be working closely with new appointees (NAVs) during 2026 to seek to apply the fitness and propriety rule to them from 2027.

The consultation will be open until 23 October 2025, after which Ofwat will consider the feedback before issuing the final rule.   

Ofwat will take action where companies fall short

Helen Campbell, Executive Director, Delivery at Ofwat said:

”With our new powers from government, we are ensuring that water company executives demonstrate that they meet high standards of behaviour, competence and financial soundness. Water companies must have robust processes in place to demonstrate how senior managers meet our standards, and Ofwat will take action where companies fall short. These measures are an essential part of ensuring water companies have a culture that meets the expectations of customers and rebuilds trust in the water sector.”

Water Minister Emma Hardy MP commented:

“This government introduced the Water (Special Measures) Act to usher in a new era of accountability in the sector. Today is another example of just that. This consultation will promote the right culture in water companies and deliver transformative change.

“By ensuring that those at the top of water companies meet the highest standards, we are rebuilding public trust, strengthening accountability, and driving change to clean up our rivers, lakes and seas for good, as part of our Plan for Change.”

Click here to download the consultation paper