‘No deal’ Brexit – REMIT Contingency Arrangements
As we head towards a possible ‘no deal’ Brexit on 29 March, further clarification has been issued by energy regulator Ofgem on the contingency arrangements to apply to utilities and energy traders caught by the EU’s market abuse regime for the energy sector, REMIT.
REMIT is the EU Regulation on Wholesale Energy Market Integrity and Transparency (1227/2001), and sits alongside a Commission Implementing Regulation (1348/2014) on data reporting. Backed up by UK domestic civil and criminal enforcement regulations, REMIT creates prohibitions on insider trading and market manipulation on the energy markets, as well as imposing registration and trade reporting obligations on market participants and the public disclosure of certain “inside information”.
Enforcement of REMIT is the preserve of the national energy regulators, including Ofgem in GB, and fines across the EU for non-compliance are becoming more commonplace; the most recent fines were handed down only last month by the German regulator, the Bundesnetzgentur, in a case relating to market manipulation.
As a directly effective piece of EU law, the European Union (Withdrawal) Act 2018 will render REMIT a part of retained EU law after Brexit, with changes made at the point of exit by virtue of the Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019.
This statutory instrument, one of many made under the European Union (Withdrawal) Act 2018, will also amend the REMIT Implementing Regulation and the UK enforcement regulations, making a series of technical amendments. Notably, these will facilitate the migration of market monitoring activity from the Agency for the Cooperation of Energy Regulators (ACER) to Ofgem, and will also require market participants to register directly with Ofgem (or with the Northern Ireland Authority for Utility Regulation, for Northern Ireland), as well as facilitate the creation of a new domestic trade data reporting regime.
Whether or not the UK leaves the EU with a deal, these changes will be needed in order to ensure that the UK can continue to operate a workable market abuse regime post Brexit, which mirrors the EU regime under REMIT.
A key question, however, is how the UK can untangle itself from the EU wide REMIT registration and data reporting channels after Brexit. Whilst the working assumption is that these will remain unchanged for the duration of the 21 months implementation period to end December 2020, this can only happen, of course, if the Withdrawal Agreement is approved by the UK Parliament and executed by 29 March.
Given the current political uncertainty, Ofgem has therefore recently published some ‘no deal’ contingency arrangements for REMIT, in open letters to the industry on 4th December 2018 and, more recently, on 1st March 2019.
These contingency arrangements cover three main areas.
Monitoring and enforcement
Here, little will change. Ofgem will continue to monitor the GB wholesale energy markets and enforce the existing REMIT prohibitions, using its powers under the current domestic enforcement regulations. Furthermore, inside information will continue to be publicly disclosed by GB market participants on the existing disclosure platforms. It also appears that the existing REMIT carve-outs for wholesale energy products within MIFID II will continue domestically within the financial services regime overseen by the Financial Conducts Authority.
This is more problematic. Ofgem has unilaterally stated that, in the event of a ‘no deal’ Brexit, it intends to continue to recognise market participants registered with regulators in EU member states. This means that market participants based elsewhere in the EU traded wholesale energy products for GB delivery will not need to obtain separate new registrations with Ofgem in order to comply with the UK REMIT regime. However, no such commitments have been made by the EU, and so market participants presently registered with Ofgem who wish to trade products for EU delivery will need to re-register with a national regulator of an EU member state. ACER has issued an open letter explaining how registrations applications can begin now, in preparation.
For new registrations after 29 March, market participants wishing to trade products for GB delivery should register direct with Ofgem, rather than (as now) registering centrally using the EU’s CEREMP register.
The key point here in a ‘no deal’ scenario is that, from midnight CET time on 29 March, data reports for GB-delivered trades will cease to be collected by ACER. Ofgem will not establish a replacement trade reporting system straightaway. Instead, there will be an initial review period, during which Ofgem will consult with the industry and decide what new GB reporting requirements might look like, recognising that many other existing data sources will remain available for it to discharge its market surveillance activities. These sources will include existing GB fundamental and transparency data flows, which will continue (with modification) under the relevant retained EU law (based on the Transparency Regulations (543/2013) and the Gas Regulation (715/2009)).
Just to be clear, these contingency arrangements will apply only in the event of a ‘no deal’ Brexit. Should the Withdrawal Agreement be approved and executed, then existing REMIT registration and data reporting channels are expected to continue as now throughout the implementation period.
Furthermore, it has to be said that the disruption of a ‘no deal’ Brexit is unlikely to distract Ofgem for too long from its desire to be seen to be getting tough with industry on REMIT enforcement, and market participants should continue to take their REMIT obligations seriously. This is not an area where anyone expects to see gradual divergence of UK regulation through a relaxation of retained EU law.