This is the 500th post on this blog, which has now been running for just over two years. During that time we have seen a lot of activity in the realm of commodity and energy trading regulation.
Regulation of the type found in EMIR, REMIT, MiFID etc. is relatively new for the energy and commodity trading sector, as is the concept of “big compliance”. We can consider two aspects of this:
Firstly, the scale of “big compliance”: The concept of wide-scale data reporting, surveillance, clearing and some of the other measures required by the regulations has not been known in the sector until now, and neither has the scale and complexity of the requirements to implement them, from a business and technology perspective. On top of this, many of the rules are unclear and subject to interpretation, with changes and new information coming to light constantly.
When this blog started, we were just under a year away from the EMIR reporting go live, and at that point it was already becoming clear that there was a great deal of work to do. Those requirements were complex, confusing and changed until the end. REMIT is not proving to be that easy either, and MiFID II may bring a scale of work as yet unseen, especially if many companies lose their exemptions. We can expect the scale to continue to grow as wider requirements such as mandatory clearing and surveillance take effect.
Secondly, the permanence of change and size of compliance: When the regulations first came to light, they appeared to be a “project”, that in time would be delivered, and at which point we could go back to “normal”. The reality however is different: The financial services world has already learned that compliance is permanent. Not only will larger compliance departments be required going forward, but there is likely to be a constant flow of regulatory initiatives and therefore projects. As MiFID II approaches, some will need to expand the scope of regulation, and also consider other rules such as CRD IV, and whatever else gets thrown at us in the future. Changes in existing rules will also keep us busy.
Many in the industry worry that regulation will be detrimental to the business itself, and may cause some market participants to withdraw. Hopefully this impact will not be too great. This is likely to involve a balance of compromises in the rules, better tailoring of certain financial regulation to the needs to Commodity Dealers, and the industry itself absorbing and encompassing the changes. What is certain however, is that a “regulation culture” will be required to successfully navigate the new world of “big compliance”.
We hope to continue to provide useful information as it unfolds on this blog. It will be interesting to see how the industry does over the next 500 posts.