As in previous years, as 2020 opens, we will dedicate this first post to considering what will keep us busy over the coming months in the regulatory world of energy and commodity trading, focused on Europe.
Same themes as last year?
Many consider us to now be in the regulatory era of “making it work” Before the financial crash of 2007 to 2009, financial style regulations had a lower impact on the energy and commodity trading sector. The crash changed this and led to the introduction of several sets of rules, with EMIR, REMIT, MiFID II and MAR forming the core of new rules rolled out to 2018. Since the start of MiFID II, we have entered a period of “making the rules work”. This is comprised of a combination of allowing the rules to bed down, making some changes to the rules and enforcements.
At the beginning of last year, we posted these predictions for 2019 and as highlighted in this closing post of 2019, many came to pass. In many respects we can expect the same themes to continue in 2020:
An increase in enforcement cases – 2019 saw an increased number of enforcement cases as predicted. Regulators have indicated that this will continue (for example see here). The last 2 weeks of 2019 also saw a MAR fine in the UK, levied for failure to notify personal trades (see here on the FCA web site).
Continued focus on anti-abuse activity – The focus on anti-abuse activity in the form of organisation, processes and technology is likely to continue, given the time since rules such as MAR and REMIT started and the continuation of enforcement cases, not only about insider trading and market manipulation, but also anti-money laundering and anti-bribery and corruption activity. In addition, the move towards “compliance maturity” of many organisations drive the desire to improve. The 3rd “open anti-abuse forum” will be run in March in London to continue the discussion with all connected parties (see here).
Changes to existing rules and new rules – Last year saw the EMIR “REFIT” changes implemented. Discussions on changes to MiFID II, MAR and REMIT are all in play for this year and so it will be necessary to keep an eye on developments. While many of the proposed changes are “tweaks”, some may have a significant impact on market participants, for example the proposed removal of the “REMIT carve out” (see here). 2020 sees the first implementation of SFTR although if a market participant in energy and commodities is within scope the start is likely to be in 2021.
Organisational maturity – The compliance functions of market participants have continued to mature. We can expect this process to continue in 2020, not only in terms of matters such as anti-abuse efforts, but also in terms of governance and organisation. In technology terms, we may see further efforts to move to a more strategic approach, of example in data reporting.
Brexit – Despite a few “close shaves” in 2019, no Brexit occurred. We now know that Brexit will “get done” on 31st January 2020. However, the focus in regulatory terms will be on the end of the “implementation period”, which is scheduled for 31st December 2020. At that stage, we may once again get a “no-deal” Brexit or a specific deal. We can expect details of such discussions to emerge over the course of the year as well as possible divergence.
As always, it is worth keeping an eye on the financial sector, who have different issues to deal with (see for example this article on The Trade News). Some of the issues experienced there will apply directly to energy and commodities. Often though, the financial sector is “ahead” of energy and commodities, so we can expect issues that have hit in the previous period to arrive in energy and commodities in the near future, where it is relevant. The anti-abuse focus is one example of this. Another is the use of new “Regtech” to strategically solve regulatory issues.
This blog will continue to be provided free of charge for 2020. There will be occasional posts announcing the commercial services of ETR Advisory who run this blog, although these will be limited and as before no sponsorship or other advertising will be permitted. Those who wish to have customised updates as well as personalised support and updates would be welcome to find out more about ETR Advisory’s Regulatory Support Service (see here).
We look forward to continuing to share regulatory news as 2020 unfolds.