Navigating the crosscurrents: learning points from the Independent Water Commission’s interim report

In a previous article on the launch report of the Independent Water Commission for England and Wales, I commented on the detailed knowledge of the history of the sector that the Commission had set out in its launch report; the report’s analysis of the complexity of current regulatory systems; and my view that we have inherited a water sector that reflects the regulatory framework that was put in place on privatisation. 

I also suggested that the Commission should support a future direction of travel for the sector which would allow undertakers to ‘focus on where you want to get to,’ i.e., a long-term focus on achieving tangible improvements in performance, which can only be achieved through significant infrastructure development, financed by a stable platform for investment in the sector.

Over 50,000 responses were received to the call for evidence. The Commission’s interim report was published in early June, and contains a thoughtful and detailed analysis of the sector which matches the detail set out in the original launch report. It also includes some ideas for reform, each of which is a logical and sensible step to address the current problems in the sector. What is lacking is a framework for how these diverse ideas can be knitted together to form a coherent whole; in fact, there is a danger that the proposals for reform will give rise to unhelpful ‘crosscurrents’ that might inhibit the possibilities for radical change that I argued previously were needed for the sector. At the heart of the report is a tension that can be seen in other sectors too, between the drive for growth and the desire to put in place strong regulatory frameworks.

How legal teams can help build customer trust

The Commission Chair, Sir Jon Cunliffe, mentions in the foreword the urgent need for the sector to regain customer trust. In my previous article, I noted the parallels with the need to rebuild trust in the banking sector, following the 2007 financial crash. Legal teams can play a vital role in supporting the building of trust with stakeholders, including regulators, customers and the wider public. Developing and maintaining honest and open lines of communication, owning the problems and acknowledging where change is needed, can help to mitigate the wider risks to any organisation posed by damage to trust and reputation. Contributions to identifying strategic risks and helping to mitigate them can also ensure the organisation’s decision makers, from the Board down, are focused on the things that can make a difference to its reputation for being trustworthy.

Areas for reform

To the obvious disappointment of some commentators, the interim report does not include consideration of public ownership models for water companies, unsurprisingly, since these were explicitly outside the scope of Sir Jon Cunliffe’s terms of reference. The interim report does, however, cover a lot of ground in looking at five key areas for reform, in relation to each of which it proposes ideas for significant change and development:

1. Strategic direction and planning – A call for clearer long-term objectives and alignment between regulators and regulated entities, to be set both at national and regional levels.
2. Legislative framework – Proposals to modernise outdated statutes and harmonise overlapping mandates.
3. Regulatory reform – A shift towards outcomes-based regulation, with greater emphasis on transparency and accountability and a move towards supervisory regulation.
4. Company structures and governance – Recommendations to strengthen board-level responsibility and improve ownership transparency.
5. Infrastructure and asset health – A push for more robust investment planning and performance monitoring, grounded in better asset mapping.

There are several potential tensions in the proposals set out in the interim report. Perhaps the most troubling ‘crosscurrent’ is in relation to the overall desire to ensure that the regulatory framework is ‘strengthened and rebalanced’ in a way that supports a less volatile and unpredictable context for future investment, versus the prospect of regulators operating at a greater level of detail and in areas (notably, governance in relation to company leadership) where their scope of involvement has previously been more limited.

The proposals in the interim report are aimed at providing ‘strategic oversight’ combined with a ‘deep understanding of company specific contexts.’ This more detailed approach is described in the interim report as a move towards a supervisory regime for regulation that would see key regulator contacts sitting alongside companies and would move away from the blunt instrument benchmarking approach of current economic regulation, recognising the fundamental differences in the age and condition of water infrastructure across the sector and the different geographic and geological context within which each undertaker operates. There would also be greater involvement by regulators in ensuring good governance and the suggestion is made to introduce something akin to the senior managers’ regime in the financial services sector, all as part of a focus on improving company culture and performance. 

What does this mean for lawyers in other sectors?

The interim report illustrates a dichotomy that will be familiar to many lawyers working in sectors outside the UK’s privatised water sector: how to manage the competing burdens of enabling growth, whilst dealing with an ever-greater compliance burden. Legal teams internationally are reporting that they are facing an unprecedented convergence of regulatory, operational and strategic pressures. As noted in the Association of Corporate Counsel’s (ACC) 2024 and 2025 Chief Legal Officers (CLO) surveys, legal departments are being asked to do more with less, while simultaneously navigating increasingly complex regulatory environments. The 2025 survey, which gathered insights from 772 CLOs across 48 countries, revealed that 42% of legal teams are under cost-cutting mandates, with two-thirds bringing more work in-house to manage budgets. Meanwhile, the 2024 survey highlighted growing concerns around data privacy, AI governance and geopolitical risk.

These pressures are not abstract. They manifest in the day-to-day responsibilities of counsel, who now face the challenges of acting as strategic advisors, compliance gatekeepers and operational risk managers.

UK government policy has identified regulatory reform as essential to encouraging economic growth. In a Treasury Policy paper dated March 2025, government set out a vision of a regulatory system that supports growth, is targeted and proportionate, is transparent and predictable, and adapts to keep pace with innovation. Yet despite this, we seem likely to be faced with new and potentially more complex approaches to regulation, at least as far as the water sector in England and Wales is concerned. 

A comparative lens: Ofwat’s PR24 framework

To understand the potential impact of the Commission’s proposals, it’s helpful to compare them with recent developments in the water and energy sectors. The framework developed by Ofwat for the Price Review 2024 (PR24), the conclusions from which govern price controls for water companies from 2025 to 2030, offers a forward-looking, performance-based approach. It includes mechanisms such as:

• Customer Measure of Experience (C-MeX) and Developer Measure of Experience (D-MeX) to incentivise service quality.
• In-period Adjustments to revenue based on performance metrics.
• Energy Cost Adjustment Models to help manage volatility in operational expenses.

These tools reflect a broader regulatory philosophy: align financial incentives with customer outcomes, and use data-driven models to ensure fairness and adaptability.

The terms of reference for the Commission included a commitment not to make any recommendations that would impact on PR24. The Commission’s interim report echoes this approach, particularly in its emphasis on infrastructure resilience and governance reform. However, it goes further by proposing structural changes to the regulatory ecosystem itself, suggesting, for instance, a more centralised strategic planning function, greater regional input into policy and enhanced parliamentary oversight, as well as a central proposal to enable greater interaction and collaboration between regulators. Although the interim report acknowledges that it is still ‘actively considering’ all of the options for interaction/integration.

Lessons from financial services: the Senior Managers and Certification Regime

The interim report makes the case for learning from other sectors, with examples highlighted in relation to the regulation of governance and management responsibilities. Perhaps the most obviously instructive comparison comes from the financial services sector. The Senior Managers and Certification Regime (SM&CR), introduced in 2016 and now fully embedded across UK-regulated firms, aims to enhance individual accountability and cultural integrity.

Key features of the SM&CR include:

• Pre-approval of Senior Managers by the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA).
• Statements of Responsibilities that clearly delineate each manager’s remit.
• Annual Fitness and Propriety Assessments.
• Conduct Rules that apply to most staff, not just senior leaders.

The Independent Water Commission appears to draw inspiration from the SM&CR in its call for clearer board-level accountability and enhanced regulatory scrutiny of company leadership. If adopted, such measures could significantly alter the compliance landscape for water companies and potentially would set a precedent for other regulated sectors.

Implications for counsel

So, what does all this mean for legal teams?

1. Increased accountability – As regulatory regimes evolve to emphasise individual responsibility and accountability (as in the case of the SM&CR for the financial services sector), compliance support will need to flex and adapt to ensure that it provides sufficiently robust assurance to the organisation and support for the accountable individuals.
2. Strategic advisory role – With regulators focusing more on outcomes and governance, legal departments should consider their involvement in strategic decision making. This includes advising on board composition, risk appetite and stakeholder engagement.
3. Data and technology readiness – Performance-based regulation relies heavily on data. Legal teams must continue to focus on ensuring that data governance frameworks are in place and that legal risks related to AI, privacy and cybersecurity are proactively managed.
4. Resource constraints – The expanded responsibilities highlighted in the ACC surveys are rarely matched by increased budgets. Legal leaders must therefore ruthlessly prioritise, automate where possible, and make a compelling case for investment in legal operations.

Conclusion: a call to action

The Independent Water Commission’s interim report is more than a sectoral review, it is a suggestion of how regulation in the UK may evolve in the coming decade. For counsel, it offers both a warning and an opportunity. The warning: regulatory expectations are increasing, and legal teams must be ready. The opportunity: by embracing a more strategic, data-informed, and accountable approach, lawyers can not only help meet these expectations, but help shape the future of risk management and, importantly, contribute to building trust with key stakeholders.

While the final report is due sometime in summer 2025, the interim findings already signal a move towards a more integrated, risk-based supervisory model, one that could serve as a template for other sectors. In the meantime, the Commission has a lot of work to do to knit together the various proposals in the interim report. The report itself acknowledges that ‘a number of important issues on which thinking is at an earlier stage’ are not covered. Further work will be required in order to manage the ‘crosscurrents’ and develop a coherent and stable legal and regulatory framework for the water sector.
 

Nicola Williams is a Partner in Eversheds Sutherland LLP’s Energy and Natural Resources sector team, and previously worked as General Counsel and Legal and Compliance Director for a regulated utility.