Following a number of recent developments, described below, the rules and regulations enacted under the European Union (EU) Regulation on Wholesale Energy Markets Integrity and Transparency (REMIT) are now close to being fully-implemented. Market participants must ensure they are now prepared for an increasing number of investigations and enforcement actions.
1. REMIT implementation: the current framework
REMIT is an EU regulation intended to address perceived market integrity issues in the wholesale electricity and gas markets.1 As a regulation, REMIT is immediately and directly applicable as law in all 28 EU member states. The majority of REMIT’s provisions, including the prohibitions on insider dealing and market manipulation and the obligation to disclose inside information, have been in force since 28 December 2011. However, the three and a half years since REMIT was enacted has been dominated by matters relating to drafting and implementing the various supplementary REMIT rules that make-up the new market framework. This long and arduous process has involved interaction, consultation and negotiation between, EU governments, national regulatory authorities (NRAs), the Agency for the Cooperation of Energy Regulators (ACER), and market participants, among others.
As a result, to date, enforcement actions for breaches of REMIT obligations have not been forthcoming with any notable frequency. However, there is growing evidence that this is about to change. Enforcement actions require collaboration between ACER, primarily responsible for data collection and market monitoring, and NRAs, responsible for establishing and enforcing REMIT rules in their respective jurisdictions. On 3 June 2015, ACER presented its Draft Outline of the 2016 Work Programme.2 ACER highlights that REMIT will have gone beyond ‘implementation’ and reached the ‘operational’ stage by 2016. It states a specific aim to ensure a coordinated approach to the enforcement of market abuse rules and NRAs’ investigation activities on cross-border market abuse instances.
Many EU member states, including the UK and Denmark, have enacted a criminal regime related to those REMIT market abuse offences considered more serious, namely insider dealing and market manipulation, In the UK, since April 2015, a person found guilty of such offences may be liable on conviction to imprisonment not exceeding two years, or a fine or both.3 In Denmark, punishment can include imprisonment for up to six years for violations of the ban against market manipulation under aggravated circumstances.4
ACER has previously highlighted the success of the United States Federal Energy Regulatory Commission (“FERC”) in bringing multimillion dollar fines in market abuse investigations to justify its focus on effective monitoring.5 As of Q2 2015, thirty-seven investigations into breaches of REMIT were already underway6 and the Danish authorities reportedly brought allegations of criminal market abuse offences against a market participant. Market participants should note that these announcements from ACER and the establishment of criminal penalties in certain jurisdictions indicate regulators’ intention to strictly enforce the provisions of REMIT as soon as resources allow.
Moreover, as reporting of trades under REMIT goes live (see Part 3 below), ACER will have access to vastly increased volumes of market data, which will further enhance its ability to launch investigations and to cooperate with and make recommendations to, NRAs, which is likely to trigger further enforcement activity.
2. Disclosure of inside information
Along with the prohibition of market abuse, the REMIT disclosure of inside information regime requires certain information to be made available to the public either on transparency platforms or on the market participant’s website. ACER is presently undergoing a public consultation on the disclosure of inside information, as it has identified a significant variation in disclosure practices across the 28 EU jurisdictions.7 These differences include, inter alia, disparate nomenclature used for the same concept, different units of measure used, and a varying depth of detail presented in Urgent Market Messages (the messages by which information such as details of unplanned outages is intended to be promptly disclosed to the market).8 ACER aims to produce a manual which sets out recommendations to harmonise common disclosure practices across the EU member states. The public consultation closed on 30 June 2015.
As market participants will be aware, the REMIT Implementing Acts9, which entered into force on 7 January 2015, triggered the deferred implementation period for the reporting of wholesale energy transactions. Before reporting commences, market participants must be registered with the NRA where they are established, or, if not located in the EU, in a member state where they are active.10 The reporting of ‘standard contracts’ (i.e.those wholesale energy products traded on organised market places) will commence on 7 October 2015. Reporting of all other ‘non-standard contracts’ will commence on 7 April 2016.
The reporting of transactions, including orders to trade, will take place via the organised market places concerned, or through Registered Reporting Mechanisms (“RRMs”). RRMs are those bodies directly reporting trade data and fundamental data to ACER. Market participants may employ a third-party RRM to send the appropriate information to ACER, or may choose to register as an RRM themselves.
On 3 June, ACER posted a list of twenty-five RRMs which have been pre-registered for the first phase of reporting. In the most recent issue of ACER’s publication, REMIT Quarterly, ACER noted that “the Agency is currently in the final stage of approving a first group of third-party RRMs and…is also processing more than 320 market participant RRM applicatns in parallel.”11 While recognising delays in registration, ACER indicated that the agency is prepared for the reporting requirements which will enter into force over the next ten months.