Ofcom Fines: The Writing’s on the Wall for Companies Who Fail to Prepare for the Worst

//Ofcom Fines: The Writing’s on the Wall for Companies Who Fail to Prepare for the Worst

Ofcom Fines: The Writing’s on the Wall for Companies Who Fail to Prepare for the Worst

legal updateIt seems that Christmas has come early for former pay-as-you-go (PAYG) customers of Vodafone. Earlier this year Ofcom (the independent regulator for the communications industry) issued the mobile network giant with a £4.625 million fine and ordered money be paid back to consumers affected by accounting failures when the provider switched payment platforms.

Amongst other commercial wrongdoings, £3.7million of the total figure was attributed to Vodafone’s failure to reimburse over 10,000 PAYG customers with money taken from their accounts as the billing process was modernised. Under s11.1 of Ofcom’s ‘General Conditions’ (the code regulating all communications providers in the UK), consumers cannot be billed for a service that does not reflect what they are actually receiving. In the case of Vodafone, it was very clear that money extracted from accounts for merely switching payment platform breached that code. Beyond that, however, Vodafone were found to be in breach of s23.2 of the General Conditions – engaging in dishonest, misleading or deceptive conduct. Naturally the absence of £170,000 from customer accounts prompted hundreds of complaints to the provider and Vodafone’s failure to implement an effective complaints procedure or dispute resolution service eventually led to Ofcom acting to bring the overall fine. Vodafone simply were not prepared to face a major crisis such as this.

At this point, I could round off today’s blog post by wagging my finger and reminding you not to deceive the poor, innocent consumer!

But the Vodafone story is just the latest in a string of regulatory crack-downs and company procedures that have crumbled under economic uncertainty during 2016 (BHS, anybody?). To stave off commercial bad luck in time for 2017 it’s worth revisiting some of the major low-points of ‘company law gone wrong’ from this year.

RBS Fails All Bank of England Stress Tests (November, 2016)

The bank that received a £45.5 billion bailout by taxpayers in 2008 is still a high risk to the UK’s economy. That’s the news that emerged in late November surrounding the revelation that the Royal Bank of Scotland (RBS) failed nearly all of the reverse stress tests ran by the Bank of England.

Reverse stress testing is an activity usually carried out by major financial players and involves looking at a particular outcome (for example, insolvency) and identifying all of the circumstances that might lead to its occurrence. Whilst for banks the stakes are often much higher when considering the scenarios that could cause them to entirely drain their coffers, that doesn’t mean that the process is not useful for businesses and investments of all sizes.

In your business, consider ‘worst case scenarios’ that could potentially arise, such as insolvency or failure to adequately deliver your services to end-users. Can you ‘reverse engineer’ any circumstances that could lead to these problems occurring? What would happen if a major client went bust/the price of oil rose significantly/a key employee left or became sick?

If you can anticipate potential causes of crisis within your business that could lead to a disaster further down the line, then take action. What can you do to mitigate the risks? How would you manage if the ‘worst case scenario’ came true? It pays to be ready.

‘Safe Harbour’ Agreement Declared Invalid (October, 2015) and ‘Privacy Shield’ Launched (July, 2016)

Okay, so not an example exclusively from 2016 and not company law per se but still very relevant nonetheless. In Autumn 2015 the ‘Safe Harbour’ Agreement between the US and the EU was ruled to be invalid by the European Court of Justice. The scheme had effectively authorised companies to transfer consumer data between the continents and more or less certificated the US as a safe and trustworthy data-protection regime. Following revelations about the NSA’s PRISM surveillance scheme, however, it became apparent that agreement was built on a rocky foundation and data privacy simply wasn’t afforded the respect that the framework supposedly provided for.

Fast forward to Summer of 2016 and a new agreement, ‘Privacy Shield’ was launched. Amongst other changes to the framework a complaints mechanism was established and an ombudsman placed within the US state department to oversee compliance by both companies and the government.

Such a change goes to show that if a proper complaints and disputes service can remedy a broken international agreement, it could well help out a company dealing with a backlash from consumers. Whatever the problem may be, a well-thought out and properly oiled mechanism for dealing with complaints could keep you on the right side of the consumer and prevent a situation such as that faced by Vodafone. Customer care is key.

Of course, there have already been challenges to Privacy Shield, so who knows how long this solution will last. With the potential exit of the UK from the EU, this is unlikely to be the final update on international data transfers for the year ahead.

First Director Disqualified for Price Fixing (August, 2016)

In a case that has featured on the Devant blog before, the Competition and Markets Authority (CMA) secured its first prosecution of a company director for price fixing in August of 2016. The director of Trod Limited, an online poster seller, was disqualified from company management roles for 5 years. The penalty came after the business had agreed with their main competitor to fix a minimum price for posters they sold in an attempt to drive up revenue for both.

Of course, the advice here is to not take part in price fixing or other illicit activities but more widely it hammers home the importance of being open and honest in all your business activities. Whether completing your Persons of Significant Control (PSC) Register, contracting to provide products or services to a client or changing your altering your company’s constitution, being clear and to the point from the outset avoids any confusion later down the line. Transparent business practices make clear what all parties want or will provide from a transaction and, in the end, are more likely to ensure that that is what’s achieved.

“By failing to prepare, you are preparing to fail.” – Benjamin Franklin

It might be a cliché, but in the business world this mantra holds true. Whether it be reverse-stress-testing to work out where your business is at its weakest, or implementing a more effective customer complaints service, preparation and planning make good for good business no matter which industry you’re in.

As the festive period draws closer, companies wound up in major setbacks during 2016 will be reflecting on what went wrong and how it can be done better in future. Even if you haven’t been at the centre of a commercial storm as Vodafone has following Ofcom’s fines, take stock and consider how you can make 2017 a better year for your business. We’d like to to contribute to that success, so contact us for a free initial chat.

callumsignature

 

 

 

Callum Sommerton
The Butler, Devant

2017-02-19T13:49:46+00:00

Leave A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.