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Navigating the New Era of Market Integrity: The Role of Data Vendors in Supporting REMIT II Compliance

The header image shows a photo of Custodia's Head of Regulatory Affairs & Compliance, Dr Nathalie Aubry-Stacey, who wrote the piece. The sub-heading that introduces the piece reads "REMIT 2 represents a significant shift in the European energy market landscape.

Since the global financial crises in 2008 the regulatory landscape has increased with a plethora of new regulations with specific provisions related to the prevention of market manipulation and the use of inside information covering financial energy derivatives and physical wholesale markets.

On May 7, 2024, with varying application dates for certain provisions, a significant shift in the European energy market landscape is taking effect with the implementation of Regulation (EU) 2024/1106, commonly referred to as REMIT II. This regulation amends previous regulations to reinforce wholesale energy market surveillance in the European Union and ensure open and fair competition in the wholesale energy markets. The regulation sets the basis for increased market transparency and integrity, enhancing the public's trust in the functioning of wholesale energy markets.

3 key changes as part of the recast of REMIT includes:

Obligation for third-country market participants to designate a representative

One of the most heavily debated provisions concerned the Commission’s proposal about third-country market participants establishing a presence within the EU. Ultimately, it was agreed that these participants must appoint a representative in the EU and register in the Member State where they are active; both the appointment and registration must occur in the same state by 8 November 2024. The EU representative will serve as the main contact for the Energy Regulators' cooperation agency (ACER) or the relevant national regulator. This representative must be empowered to ensure effective compliance and response to any regulatory decisions or information requests. Additionally, the representative's contact details must be reported to the national regulator.

REMIT/MAR alignment of market manipulation and inside information definitions

Recognising the growing interconnections between financial markets and wholesale energy markets, co-legislators have enhanced the alignment of REMIT with the Market Abuse Regulation (EU) 596/2014 (MAR). Specifically, REMIT's definition of market manipulation now includes not only transactions and orders related to trading but also any actions concerning wholesale energy products that may create false or misleading impressions of supply, demand, or pricing. These actions include: (i) behaviours likely to mislead regarding the supply, demand, or price; (ii) activities by one or more persons aiming to fix prices at unnatural levels; and (iii) the use of deception or fraudulent devices affecting market perceptions. Additionally, transmitting incorrect or misleading information about a benchmark now also falls under market manipulation as per the updated REMIT.

Furthermore, the amendment adjusts REMIT’s concept of inside information to match that under MAR. This encompasses each phase of a multi-stage process and the entire sequence, potentially constituting inside information. Even an intermediary stage could represent specific existing or potential circumstances assessed at the relevant time. Information is deemed relevant to a wholesale energy product if it could influence, directly or indirectly, its demand, supply, or pricing expectations.

Lastly, the updated REMIT specifies that its provisions operate without affecting the regulatory obligation existing under other financial regulations including MAR, the European Market Infrastructure Regulation (EU) No 648/2012 (EMIR), the Markets in Financial Instruments Regulation No 600/2014 (MiFIR), the Markets in Financial Instruments Directive

In the UK, Regulation 8(3) of the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 (the REMIT Regulations) expects regulated persons to take reasonable steps to ensure that any communication relating to wholesale energy products is recorded and that a copy is retained (i.e. stored in a medium that is accessible by Ofgem). Regulation 8(6) also requires regulated persons to take reasonable steps to prevent the making, sending, or receiving of any relevant communication (including on privately owned equipment) that it cannot ensure is recorded or retained in accordance with the REMIT Regulations.

Expansion of the definition of wholesale energy product

The definition of a "wholesale energy product" under the recast of REMIT has been expanded to provide a more comprehensive coverage. Previously, the definition included contracts for the supply of electricity and natural gas with delivery within the EU. The updated definition now also includes liquefied natural gas (LNG) under the category of natural gas and extends to cover contracts for electricity that might result in delivery within the EU due to single day-ahead and intraday market coupling. Furthermore, the revised definition encompasses derivatives associated with the production, trade, or delivery of electricity or natural gas within the EU, including those that might result in delivery due to market coupling mechanisms. Additionally, it now covers contracts and derivatives related to the storage of electricity or natural gas within the EU.

In the changing landscape of European energy regulations, and specifically the introduction of REMIT II, CC1 powered by Custodia is prepared to enhance its support for energy market participants. REMIT II includes a suite of regulatory complexities that necessitate stringent compliance protocols, emphasising the need for transparent and precise record-keeping. Leveraging its extensive experience in financial services, CC1 powered by Custodia can provide invaluable assistance in navigating these new requirements, ensuring that energy companies not only comply with the current regulations but are also well-prepared for future regulatory developments.


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