The Hungarian Ministry for National Development has recently published the draft laws relating to the Hungarian implementation of the Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (the so-called “REMIT”). Publication of the draft laws is part of a public consultation process during which stakeholders and other interested parties are invited to express their views on Hungary’s proposed implementation of REMIT, which is expected to be completed by the end of this year. As the draft laws have not yet been discussed by the Hungarian Parliament and Government, their content may undergo further changes.
The adoption of REMIT in 2011 by the European Parliament and the Council constituted an important milestone in the development of the EU internal energy markets. For the first time, REMIT has introduced a single and unified EU-wide legal framework for the regulation of market manipulation and insider trading on the EU wholesale electricity and natural gas markets. Its primary objective being to detect and deter market manipulation, REMIT also creates the legal basis for the implementation of a centralised monitoring system aimed at the regular review of the EU energy markets by Europe’s then-newly established Agency for the Cooperation of Energy Regulators. Once fully implemented, REMIT will, to a large extent, operate similarly to the currently applicable market abuse and market transparency regulation of the EU financial markets.
Notwithstanding the fact that REMIT entered into force on 28 December 2011 and the majority of its provisions have been directly applicable since then, Hungarian market participants have yet to focus their attention on understanding and preparing for the real-life application of REMIT. Their relaxed attitude is likely the result of the fact that the implementation of REMIT follows a rather complicated timeline from a legal and practical perspective. Although normally the provisions of an EU Regulation are directly applicable in every Member State and, hence, there is no need to adopt national implementing legislation, the case of REMIT is slightly different. Firstly, the application of REMIT’s rules relating to the centralised monitoring scheme are still subject to the adoption of further implementing guidelines by the European Commission. Secondly, it is for the national laws of the Member States to establish effective enforcement and sanctioning mechanisms relating to the obligations and prohibitions resulting from REMIT, including in particular the prohibition of market abuse and insider trading and the obligation to publish insider information relating to the wholesale electricity and natural gas markets in the given Member State. Thus, despite the entry into force of REMIT in 2011, as long as a given Member State has not yet adopted its national REMIT implementing legislation, REMIT’s otherwise strict rules cannot be effectively enforced at the national level. The same logic applies to the centralised monitoring system, where market participants are still awaiting the action of the European Commission.
This is why the publication of the draft Hungarian REMIT implementing legislation may be an indication that the standstill period, at least for Hungarian market participants, is coming to an end. Based on certain characteristics of the draft Hungarian REMIT implementing legislation one may conclude that Hungary intends to create a strong national legal background for REMIT, which could effectively ensure that the relevant provisions of REMIT are complied with by the market participants.
- A new REMIT procedure will be established under the Hungarian Electricity Act and the Natural Gas Act, respectively. In the framework of such new procedure the Hungarian Energy and Public Utility Regulation Office will have new and wide-ranging competences, including investigatory powers to assess and monitor the behaviour of market participants on the electricity and gas wholesale markets in Hungary, to detect any breach of the prohibition on market manipulation and insider trading.
- Market participants will be obliged to publish insider market information. The new law will define what is meant under insider market information and how the publication obligation must be fulfilled.
- Breaching the prohibitions and the publication obligation referred to above will trigger severe sanctions. The fine for the breach of prohibition on market manipulation and insider trading may amount up to HUF 500 million per breach (approximately EUR 1.7 million), while the fine for the breach of the publication obligation may amount up to HUF 10 million (approximately EUR 33,000). In addition, the market manipulation and insider trading offenses will also trigger criminal law consequences.
Pursuant to REMIT, Member States had to adopt their implementing legislation by the end of June 2013, which means that Hungary is late in adopting its REMIT implementing legislation. As we noted above, the lack of the adoption of the Hungarian implementing legislation and, thereby, the lack of threat of imposing fines and other legal sanctions could explain why Hungarian market participants have so far not focused too strictly on REMIT. However, the publication of the draft laws relating to the implementation of REMIT means that its implementation in Hungary is imminent and it is time for the Hungarian market participants to change their relaxed attitude and get prepared for REMIT.