European Union: Recent UK Proposals Emphasise Importance Of REMIT Compliance For Energy Firms

Last Updated: August 15 2014
Article by Doron F. Ezickson and Adam Topping

Most Read Contributor in United States, October 2018

Introduction

Two recent actions demonstrate the United Kingdom's ("UK") continuing commitment to enforcing the European energy laws and the need for vigorous compliance efforts by market participants. Last month, the Office of Gas and Electricity Markets ("Ofgem") published an open letter raising concerns as to market participants' compliance with the required disclosure of inside information under the Regulation on Wholesale Energy Market Integrity and Transparency ("REMIT").  Following on from this statement of concern, the UK Department of Energy and Climate Change ("DECC") opened a public consultation on strengthening REMIT enforcement in the UK through use of criminal sanctions for key offences. 

Background – REMIT

The Regulation on Wholesale Energy Market Integrity and Transparency ("REMIT") is the European solution to a perceived gap in the regulation of the European energy markets.  The regulation endeavours to "properly address market integrity issues on the electricity and gas markets" which are "increasingly interlinked across the [European] Union ("EU")."1 As a regulation, REMIT is immediately and directly applicable as law in the 28 EU member states, and the majority of REMIT's provisions, which include the prohibition of market abuse and insider trading, have been in force since 28 December 2011.2

In June 2014, the Agency for the Cooperation of Energy Regulators ("ACER") published the "REMIT Report," which highlighted ACER's continued commitment to investigating market abuse and enhanced market monitoring; at the event, the Director called for more ACER funding in order to implement REMIT3

Ofgem – Disclosure of Inside Information under REMIT

On 11 July 2014, Ofgem published an open letter (the "REMIT Open Letter") to all UK wholesale energy market participants and other interested parties.4 As the UK energy regulator, Ofgem is obligated to monitor the energy markets and bring enforcement actions for breaches of REMIT obligations, including the prohibitions on insider trading and market manipulation. 

The REMIT Open Letter highlights the disparity in market participants' current publication of inside information and expresses concern that the publications "are not as effective as they could be."5 Ofgem uses its letter to provide examples, give additional guidance, and suggest areas for improvement after conducting market research and meeting with 23 market participants.

Effective and Timely Disclosure of Information: Ofgem supports ACER's guidance on the effective and timely disclosure of information, as the terms are not explicitly defined by REMIT.  Ofgem found significant variations in the type of capacity changes reported, variation or lack of dates, times, and timestamps of events, and a historical record of inside information notifications. An Annex to the REMIT Open Letter provides an example template to demonstrate how inside information should be provided on a website, in "as close to real time as possible."6  They recommend that inside information notifications be available for at least two years in order to improve transparency, improve the ability to monitor the market, and lessen the burden on market participants by reducing the need for Ofgem inquiries.

OC2 Data: Operating Code 2 ("OC2") data is used by some market participants in the electricity sector to disclose outage information. Ofgem states that "reliance on OC2 data would not be likely to comply with [the REMIT obligation to publish inside information] because it allows important details on outages or changes in generation to be omitted from notifications."7 Market participants using OC2 data to disclose certain information about electricity should be certain they are supplementing OC2 data with additional information to ensure they are in compliance with REMIT Article 4.

Inside Information Exemptions and Thresholds: In its letter, Ofgem reminds market participants about the requirements for inside information exemptions, and highlights that firms must always report exemptions and justify their use. There is no defined threshold to trigger the reporting of inside information and Ofgem will not recommend a threshold, but the agency notes that any threshold set by an internal compliance process must meet the criteria set in Article 2(1) of REMIT. While Ofgem does not provide any additional guidance related to exemptions or thresholds, by highlighting these matters in its letter, the agency is signaling that compliance with these provisions of REMIT are issues that the agency considers particularly important. 

Handling Inside Information: Ofgem recommends that internal systems and processes to identify and disclose internal information be "robust"8. They provide five areas where market participants should focus their handling of inside information: internal policies and procedures; appropriate training of personnel; IT controls; internal controls over access to inside information;  and external control over how and when third parties receive the inside information.

DECC Public Consultation – Strengthening REMIT Through Criminal Sanctions

On 6 August 2014, DECC opened a public consultation setting out that the proposed criminal sanctions that will apply to the offences set out in Article 3 (insider trading) and Article 5 (market manipulation) of REMIT. DECC is not currently of the view that criminal sanctions would be appropriate for breaches of other elements of REMIT, which are more administrative in nature.  

Article 18 of REMIT requires that each member state "shall lay down the rules on penalties applicable to all infringements of this Regulation."10  The UK implemented the required REMIT enforcement regulations, setting out civil sanctions for REMIT breaches, on 29 June 2013 in Great Britain and on 31 August 2013 in Northern Ireland.  DECC opines that it was not possible to implement the proposed criminal sanctions to meet the 2013 EU deadlines for member state REMIT regulations but, after further research and consideration, have decided to present the proposal set out in the public consultation.

DECC maintains that criminal sanctions are necessary to deter wrongdoers from the intentional breach of REMIT regulations, citing that "small" offences can create large consequences for the rest of the market.   The consultation paper states that criminal sanctions are more effective when (1) an offence is not likely to be repeated, (2) the criminal element has an added impact socially and professionally, and (3) when fines may not be an adequate deterrent.11

DECC further notes that bringing criminal sanctions under REMIT will bring "consistency of treatment"12 with existing financial services legislation.  The current proposed criminal sanctions under REMIT will include up to two years imprisonment.  However, recognising that this is less than the maximum penalty (of seven years imprisonment) that would apply for corresponding breaches of financial services legislation, DECC proposes to "keep the relationship between the markets under review as the regulatory regime around financial markets develops".  This leaves the door open to enhanced REMIT criminal sanctions being enacted at a later stage.  The criminal element will apply to both natural and legal persons with fault and the "mental element" of intent and/or recklessness.13   These sanctions will apply only to those offences with a "territorial link to the UK"14 and will include benchmark manipulation. 

The UK Regulators and REMIT

The REMIT Open Letter and the DECC consultation papers demonstrate the importance of   EU rules for national regulators.  Ofgem already has completed an analysis of market participants' application of REMIT regulations and given additional guidance on how to comply with the rules.  DECC has now demonstrated that it takes very seriously its duty to enforce REMIT regulations by consulting on possible criminal sanctions for breaches of insider trading and market manipulation of the energy markets.  These actions emphasise the increased regulatory scrutiny by national regulators of the energy markets and brings the likelihood of future enforcement action against those firms and individuals who are not compliant with the regulations.  With the REMIT Implementing Acts set to come into force later in 2014, market participants should review their compliance programmes to ensure they are  able to effectively discharge their current and forthcoming legal obligations with regards to REMIT.

Footnotes

1 Recitals 2 and 3, Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency ("REMIT"), OJ L 326, 8.12.2011, p. 1.

2 Some aspects of REMIT, including registration of market participants and data reporting, will apply only after the official publication of the REMIT Implementing Acts, expected in Autumn 2014.

3 http://www.cadwalader.com/resources/clients-friends-memos/ace-2014-remit-report-confirms-continued-inquiries-into-market-conduct

4 Ofgem open letter on REMIT inside information (the "REMIT Open Letter"), 11 July 2014, https://www.ofgem.gov.uk/ofgem-publications/88732/ofgemopenletteronremitinsideinformation.pdf

5 REMIT Open Letter, p. 1.

6 REMIT Open Letter, p. 4.

7 REMIT Open Letter, p. 4.

8 REMIT Open Letter, p. 5.

9 Strengthening the regulation of wholesale energy markets through new criminal offences (the "REMIT Criminal Sanctions Consultation"), United Kingdom Department of Energy & Climate Change, Ref: 14D/277, 6 August 2014, pp. 1-31, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/341293/remit_criminal_sanctions_consultation_final.pdf

10 Article 18 REMIT, p. 14.

11 Section 2.6, REMIT Criminal Sanctions Consultation, pp. 14-15.

12 Section 2.14, REMIT Criminal Sanctions Consultation, p. 16.

13 Sections 3.16-3.20 and 4.7-4.9, REMIT Criminal Sanctions Consultation, pp. 20-21; 25.

14 Sections 3.10-3.15, REMIT Criminal Sanctions Consultation, pp. 19-20.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Cadwalader, Wickersham & Taft LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Cadwalader, Wickersham & Taft LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions