In a letter to wholesale energy market participants (5 page / 312KB PDF) Ofgem warned them that any company wanting to enter into transactions or trade wholesale energy products into the EU will need to re-register with an EU regulator. Ofgem said market participants “are advised to initiate this process now, if they have not already done so”.
The regulator noted that the EU Agency for Cooperation of Energy Regulators (ACER) said in January (3 page / 384KB PDF) companies needing to re-register in the EU can prepare their registration now but it will not take effect until Brexit.
Energy law expert Jeremy Chang of Pinsent Masons, the law firm behind Out-Law.com, said the guidance represented an evolution in Ofgem’s thinking since December, when it published its first open letter (4 page / 288KB PDF) setting out REMIT contingency arrangements for a no-deal Brexit.
“Securing affordable and clean energy are key components of UK energy policy, so safeguarding the achievement of those policy aims will be crucial to any future relationship between the UK and EU, the integrity of energy market trading arrangements and in ensuring that the wholesale energy markets remain fully functioning, efficient and deliver benefit to UK consumers whatever the outcome of Brexit negotiations. In that context, the guidance should be seen as helpful to participants in highlighting how best to prepare for a no-deal Brexit,” Chang said.
British market participants re-registering in the EU will have to report data on trades in the EU using the new registration code they will be given as a result. However Ofgem said it did not anticipate that the process of re-registration presented a compliance risk.
Market participants will not need to re-register with Ofgem to enter into transactions for wholesale products deliverable in Great Britain after Brexit. Any registrations with the Utility Regulator of Northern Ireland or an EU member state regulator will be valid in the UK.
“This is to be welcomed from the point of view of ensuring the smooth transition from the arrangements today to the arrangements under a no-deal Brexit,” Chang said.
Ofgem said it will carry out a review into plans to collect trade data relating to British wholesale energy markets as this would no longer be collected by ACER.
“Ofgem anticipates that participants will have at least three months’ notice of the introduction of any reporting requirements. Market participants will therefore have the opportunity to help shape the scope of any reporting requirements and should prepare to be proactive in participating in any consultation, where appropriate,” Chang said.
The regulator will also continue to monitor and enforce wholesale energy market integrity and transparency. The same obligations on market participants to disclose information in an effective and timely way, and comply with prohibitions on market manipulation and insider trading, will remain.
The Ofgem letter confirms that the ‘carve-out’ for wholesale energy products from the Markets in Financial Instruments Directive (MiFID II) will continue in the UK after Brexit, meaning that British market participants will have the same regulatory requirements before and after the withdrawal from the EU.
Ofgem noted that the contingency arrangements will only apply in the event of a situation where the UK leaves the EU on 29 March without a withdrawal agreement in place. If a deal is reached, Ofgem said its “working assumption” was that current REMIT registration and reporting would remain unchanged during the transition period running until 31 December 2020.
REMIT prohibits market abuse in wholesale energy markets and sets out a monitoring regime for wholesale energy trading. It also requires EU member states to put in place enforcement and penalty regimes for regulatory breaches.
The regulation has applied in the UK since June 2013. It gave Ofgem investigatory and enforcement powers including the ability to impose unlimited fines for breaches of the regime.