Recent UK Proposals Emphasise Importance of REMIT Compliance for Energy Firms

by Cadwalader, Wickersham & Taft LLP


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. 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.

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.


4   Ofgem open letter on REMIT inside information (the “REMIT Open Letter”), 11 July 2014,

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:

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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