The UK’s Department of Energy and Climate Change has released a consultation paper1 announcing proposals for new criminal offences which will give the UK’s energy regulators power to prosecute individuals and corporates suspected of abusing the wholesale energy markets. The proposed offences aim to bolster the deterrent against market abuse in wholesale energy markets, where currently only civil sanctions apply. Responses to the consultation paper are due by 30 September 2014. The government proposes that the offences could be brought into force as early as March 2015.
The current regime
Insider dealing and market manipulation in the wholesale energy markets are currently prohibited under the EU regulation on wholesale energy market integrity and transparency (No 1227/2011) (REMIT) as implemented in the UK in 2013. The enforcement powers of the wholesale energy market regulators are limited to civil sanctions which include the power to impose fines.
The proposed offences
The consultation paper sets out proposed offences which mirror closely those applicable to the financial services industry under the Criminal Justice Act 1993 (the CJA), the Financial Services and Markets Act 2000 and the Financial Services Act 2012: insider trading (such as using inside information to acquire or dispose of relevant wholesale energy products); and manipulation of the wholesale energy markets. It is proposed that the latter offence will cover benchmark manipulation. Each of these offences will require proof of an element of fault, meaning that the person in question must either have carried out the activity intentionally or recklessly.
The proposed criminal sanction
The proposals include a penalty of imprisonment for individuals convicted, but of a maximum of only two years. This is significantly less than the maximum seven years’ imprisonment that applies in the case of insider dealing under the CJA. The government indicates that the proposed sentencing will be kept under review.
Significantly, the proposed offences will apply to both individuals and corporates. The offences will apply only to activities which have a “clear link to the UK”. However, this does not mean that offshore activities will automatically fall outside their scope.
These proposals indicate the UK government’s continuing commitment to introduce new or enhanced criminal sanctions to combat market abuse, specifically in relation to undesirable conduct in the context of benchmarking.2 Of course, only time will tell whether this will discourage behaviour that is intended to undermine competitive market outcomes. But in tandem with the existing criminal cartel offence under competition law – which could be triggered by collusive conduct between electricity generators – the UK regulatory authorities will have another powerful tool to take action against illegitimate interference in market processes.