By Rainer Landgraf, Product Manager for Allegro Development, EMEA
The Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) Implementing Acts came into force on January 7th laying down the final guidelines for reporting wholesale energy product transactions in the EU as required by the EU.
It is now mandatory for market participants to provide data concerning wholesale energy market transactions (including order history for standard trades) to ACER, the European Agency for the Cooperation of Energy Regulators which in turn makes the information available to National Regulatory Authorities (NRAs) in the EU for more specific enforcement.
REMIT requires ACER to monitor trading activity in wholesale energy products for the purpose of exposing and preventing both market manipulation and insider trading.
To allow for such control, ACER launched the REMIT Portal on January 8th. The Portal provides certain key documents as required by REMIT and also brings together all information and applications that market participants need to know as part of the REMIT data reporting requirements. It also allows interested parties to formally self-register as Registered Reporting Mechanisms (RRMs).
Overlapping regulatory regimes
The Implementing Acts appear to overlap with other compliance regimes and, on top of that, energy market participants have only three months to register with their national regulatory authorities. This has caused a minor panic amongst traders but are they worrying unnecessarily?
The document defines REMIT’s reporting requirements for energy contracts and derivatives, defining market abuse and prohibitions and applying identical rules to all reporting.
To complicate things however, some contracts subject to REMIT also need to be reported under EMIR and MIFID II. ACER has therefore stipulated that information which has already been reported under MIFID II or EMIR shall be considered to meet any co-existing requirement to report under REMIT.
The allowance does not work in reverse however. If information is reported under REMIT, it may still need to be reported to the appropriate authority under MIFID II and EMIR.
The changing regulatory landscape continues to perplex rule-makers and market participants alike. Uncertainty in the timing and details of these cross-border regulations are causing wholesale energy traders much anxiety over their next steps toward compliance. There is no doubt that REMIT will require a lot of time and effort both in terms of reporting and of increased scrutiny.
There are however alternatives in terms of what companies can do to meet the new requirements. Managing the process manually is not one of them. There are electronic reporting and data storage requirements involved in REMIT (and other regulatory regimes) that will quickly overwhelm any approach based on spreadsheets, both economically and technically.
Outsourcing is an option but comes with its own risks and costs. There is the added overhead of an ongoing contract to manage and how active you are in the energy trading arena will determine your breakpoints financially.
With so much complexity and overlap to manage, automating as much of the reporting function as possible makes business sense.
Automating regulatory processes requires a basic energy trading and risk management (ETRM) system.A good ETRM should be able not only to efficiently execute trades but also to guarantee trade compliance, enhance market intelligence and improve decision-making.
There are several systems out there that can offer basic ETRM functionality but there are a few factors to be considered. Do these systems integrate with your overall enterprise system? Can they be installed quickly and easily, without disruption to your day-to-day operations? Do they incorporate the core features you need to increase revenue, reduce cost, manage risk and comply with mandates?
A good Energy Trading and Risk Management System can generate returns unmatched by nearly any other technology investment for your business, but only if it also enables you to:
- Enhance market intelligence and your control
- Improve decision-making
- Uncover opportunities
- Identify best options
- Efficiently execute trades
- Effectively manage physical logistics
- Help enforce company policies
- And ensure trade compliance
If you have to bolt together various separate systems to achieve these combined capabilities, you are probably not looking at the right solution. The fact is, a robust ETRM capability can be achieved without massive customisation, if you have a vendor capable of offering a rich, field-tested solution out-of-the-box; one that provides a flexible, component-based architecture that allows you to scale your solution to fit your needs, now and as your situation evolves.
A shape-shifting software is also a solution for a fluid regulatory environment. There are software vendors with long tenures in the business of risk managing large energy purchases. In light of the new rules, you will want to choose a solution that allows you to upgrade and manage your regulatory compliance process quickly.
It is also essential to consider factors such as the ability to install software on a captive system and maintain it internally, or to buy a software-as-a-service (SaaS) contract and maintain it virtually in the cloud.
Direct connectivity to trade repositories should also be a keyfeature, including all necessary regulatory identifiers and formats. The system should be able to streamline your threshold monitoring and facilitate your risk mitigation obligations, including periodic portfolio reconciliations under the newly implemented rules.
Like any other regulatory regime, REMIT presents a remarkable challenge. The Implementing Acts have already come into force but there is still plenty of time to familiarise yourself with the rules and to understand the implications they have for your company so that you can plan accordingly. To run an efficient reporting programme and therefore eliminate the threat of fines and create the conditions for transparency, the best approach is to invest in an automated solution that can guarantee your compliance and at the same time prevent any exposure to business risk.