The Federal Energy Regulatory Commission’s Office of Enforcement (“OE”) issued a white paper on effective trading compliance practices for companies under FERC’s jurisdiction trading in the natural gas and electric markets. These practices are aimed to help such companies prevent and identify manipulative practices. According to OE, the white paper is meant to supplement penalty guidelines issued by FERC in March 2010 that provide for a “substantial and transparent mitigation credit” for organizations subject to civil penalties that demonstrate they have an effective compliance program. The overarching element identified by OE as being part of an effective program is having a culture of compliance. Specific measures include hiring compliance personnel with a variety of experiences who understand applicable regulatory requirements and the company’s businesses; integrating compliance personnel into business units and empowering compliance personnel to succeed; and ensuring compliance personnel have adequate resources, including a sufficient number of qualified persons and technological resources to monitor trading, trader communications and compliance with internal controls. Background checks should be performed on traders as part of their recruitment and regularly thereafter. These checks should include reviews of a candidate’s compliance history. Also, a trader’s compensation should reflect adherence to compliance obligations. A firm should have regular training that is specific to the business and participation should be tracked; there should be express rules and restrictions; and trading activities and communications should consistently be monitored and compliance rules should be strictly enforced with all issues followed-up. Compliance rules should include a list of prohibited and approved trading activities, and special controls should be established around trading strategies involving related physical and financial positions. Finally, an environment should be fostered that encourages employees to discuss and report compliance concerns without fear of retribution, and a firm’s compliance program should be regularly assessed for effectiveness. Simultaneous with the issuance of its white paper on effective trading compliance practices, OE issued a white paper on anti-market manipulation enforcement practices since 2005.
My View: Although intended for firms under FERC’s jurisdiction trading in the natural gas and electric markets, staff’s Effective Energy Trading Compliance Practices white paper sets forth many standards for an effective compliance program that might be considered generically by firms under SEC, CFTC or other financial or banking regulator oversight. FERC staff has considered compliance in a holistic, practical way, as opposed to the check-the-box approach too often recommended these days by some regulators.