With the discussions on the details Brexit now taking place at governmental level (for example see this article on the Reuters web site), many in the market will wish to understand how the UK’s departure from the EU will affect business activity. Those in the Energy and Commodity sector will need to understand this on two levels: From the energy regulation perspective, and from the financial regulation perspective.
From the energy perspective, a key question is whether the UK stays in the Internal Energy Market, or if not whether an appropriate arrangement is put in place to trade across inter-connectors.
This paper written by the Boston Consulting Group and Herbert Smith Freehills examines some of these issues. This summary on the Euractiv web looks at some of the many concerns in this area. Brexit’s impact on the energy market is also examined in this report written by Courtney Goldsmith on the CityAM web site.
There is a specific issue with Ireland, firstly, because the power market covers both the Republic of Ireland and Northern Ireland (The “SEM”, Single Electricity Market, to be replaced next year by iSEM), which would leave the market straddling the EU boundary. Secondly, inter-connectors are to the UK rather than other EU countries at present. This article on the Irish Times web site examines the issue further.
Overall, the trading with inter-connectors and other issues will need to be resolved sooner rather than later.
On the financial side, the FCA has made it clear, the day after Brexit (see here) that MiFID II implementation will continue, since it starts to apply well before the exit date. However, according to some reports, such as this one on the Information Age web site, there are some misunderstandings about the application. Those in energy and commodities will be particularly concerned about the status of the”REMIT carve out” for physical gas and power forwards executed on an OTF where the venue is no longer in the EU.
This blog will continue to cover all of these issues over the coming period as they arise on both the energy and financial side, as they apply to the market.