Market Operator Compliance

A review to assess retailers' responses to apply temporary vacancy statuses as a result of changes and supplementary guidance implemented into the market in response to COVID-19 (change CPW091). A sample of five retailers was selected by MOSL as representative of the variety of approaches and volume of premises impacted.

The market auditor reviewed the processes and mechanisms that each retailer implemented to identify premises that should be marked as temporarily closed to form an assessment of whether they were sufficient and in line with the guidance and revised codes. This was also supplemented by sample testing of premises that had been flagged as vacant due to COVID-19, understanding the reason for flagging and assessing whether this treatment was appropriate.

• Provided confidence to all stakeholders that retailers implemented sound processes to accurately apply the “temporary vacant” in CMOS and that the differing rates of application were not as a result of a more serious non-compliance.
• MOSL issued guidance documents to facilitate consistent and accurate interpretation and application of the requirements across the market.
• A market audit programme with the agility to respond quickly to new and emerging market risks.

A review to consider the accuracy of a sample of retailers' submissions under the Payment Deferral Scheme to ensure payments made between retailers and wholesalers were in accordance with the revised market codes, in line with Change CPW096: ‘Urgent: Payment Deferral Medium Term’

MOSL selected three retailers across three months (May, June and October 2020; nine individual submissions tested in total) for the market auditor to review their monthly submission. The market auditor checked key inputs into the payment calculations against supporting documentation to ensure they were valid. It also re-performed elements of the deferred pay calculation to ensure they were accurate.

• Provided confidence to trading parties and MOSL that payments made were accurately calculated in accordance with the market codes.
• Met the obligations of CPW096 that required the market auditor to perform a review over the Payment Deferral Scheme.

A review was planned of the application of evidenced flags against temporary vacancies in the market, with the market auditor developing a number of potential different approaches to how this could be performed. As the market responded to this process, it became clear that the volume of cases was not as high as expected and therefore risk of inaccurate vacant flags being applied was reassessed and considered to be low. As a result, MOSL in conjunction with the Audit Panel Sub-group and the market auditor, decided to not pursue this review further.

• A market audit programme that could react to changing market conditions to refocus attention and resources to the greatest need and not stick rigidly to a plan where it is not in the market's best interests.

MOSL issued a Request for Information (RfI) to all trading parties in February 2021 to understand how trading parties are meeting their data compliance obligations.

Subsequently, MOSL has selected a sample of trading parties for the market auditor to focus on their RfI responses and perform a deep dive over the processes these trading parties have in place to meet their obligations. This is currently ongoing and the output will be a thematic report, containing the findings from the review along with proposed recommendations.

The scope of the Market Operator Review for 2020/21 was focused on priority risk areas, as identified by MOSL and the Audit Panel Sub-group. The market auditor also provided review over the preparation, design and implementation of a risk and controls framework (a Compliance Framework) that will improve the maturity of the organisation in response to compliance, financial and operational risks. This framework will also seek to evolve the assurance efforts, and transition the market audit activities over time to a more efficient and effective controls-based audit.

In 2020/21 the five areas selected for review were:

• Settlement
• Unplanned Settlement
• MPS Reporting
• MO Charging
• MO Invoicing

In addition the market auditor has included change management into scope, as they consider this to be a key process underpinning the management of market codes and core market systems.

The market auditor reviewed each of these processes, focusing on the design and operating effectiveness of the key controls within each process, through walkthroughs and sample testing. In addition, the market auditor reconciled the obligations from the MAC and WRC to assess the design of the processes against the requirements in the code.

• The aim of the review is to provide confidence amongst the trading parties and MOSL that the market operator key processes are operating in line with the codes.

• A more focused review and refined scope than in previous years to ensure targeting of key risk areas and an overall lower fee.

  This review is in progress at the time of this report. The findings will be published separately in May 2021, as part of a separate market audit update.

• The findings will include any recommendations that MOSL can make to ensure that key controls are designed and operating effectively.

The audit addressed the material risk of misstatement in the calculation of settlement by CMOS, to a level required such that the Market Auditor can issue an ISAE 3000 (Revised) Reasonable Assurance opinion. This included, but was not limited to:

• Review of the operation of CMOS, and its interaction with the settlements calculation
• Review of controls in place in relation to the collation, calculation and reporting of the settlement information
• Review of key data items used in the settlement calculation (for the specified period) to assess the consistency with expected values and use of default values affecting the calculations
• Development of an independent set of logic to recalculate (for the specified period) the settlement volumes and values.

The ISAE 3000 (Revised) Reasonable Assurance opinion explicitly excludes:

• Testing or assessing any forward-looking statements and/or data
• Testing over the completeness and accuracy of the source data held within CMOS, e.g. meter reads and YVE values
• Recalculating the settlement amounts to/from any market participants on a continuous basis.

• The aim of this work is to provide assurance that CMOS is accurately calculating settlement in accordance with the relevant aspects of the market codes
• This testing is in progress at the time of this report. The findings will be published separately in May 2021, as part of a separate market audit update.