UK energy regulator Ofgem has imposed a £5.41m ($6.89m) fine on Morgan Stanley for failing to keep records of trading communications.

It is the first fine issued in the UK under the REMIT Enforcement Regulations, an EU regulation that transferred to the UK after Brexit, and the fact that it is the energy regulator that has taken the action has surprised many in the regulatory world. “I certainly wasn’t expecting Ofgem to bring the first UK WhatsApp enforcement action,” said Rob Mason, Head of Regulatory Intelligence at Global Relay.

The fine has been levied after Morgan Stanley & Co International plc was found to have failed to record and retain electronic communications made by energy traders on privately-owned mobile phones using WhatsApp between January 2018 and March 2020.

“I certainly wasn’t expecting Ofgem to bring the first UK WhatsApp enforcement action.”

Rob Mason, Head of Regulatory Intelligence, Global Relay

The breach emerged after Ofgem requested information under powers given to it by the REMIT Enforcement Regulations. The regulator found that Morgan Stanley had policy prohibiting the use of WhatsApp for trading information in place, but that it “did not take sufficient reasonable steps to ensure compliance with its own policies and the requirements of the regulations”.

Morgan Stanley has admitted the breaches, and has taken action to ensure the breaches are not repeated. This includes enhanced staff training and the strengthening of internal systems and controls. Full cooperation with the Ofgem investigation led a settlement and a 30% penalty discount on what would have been a £7.7m ($9.8m) fine.

Cathryn Scott, Regulatory Director of Enforcement and Emerging Issues at Ofgem, said: “This fine sends a strong message to market participants that they must comply with all REMIT rules or face enforcement action.”

“It is unacceptable that MSIP failed to prevent electronic communications which could not be recorded or retained. It risks a significant compromise of the integrity and transparency of wholesale energy markets.”

“We welcome the steps MSIP has taken to ensure the breaches do not happen again.”

“It is unacceptable that MSIP failed to prevent electronic communications which could not be recorded or retained.”

Cathryn Scott, Regulatory Director of Enforcement and Emerging Issues, Ofgem

In 2022, £59.8 billion ($76.11) in electricity trades and £46.7 billion ($59.43) in gas trades for UK consumers were conducted on the wholesale market, according to information gathered by Statista. Contracts often change hands multiple times before power is sold to consumers, so the figures quoted are the selling value. Morgan Stanley recorded $4.5 billion in trading revenue in the first quarter of 2023, up 12% on last year.

REMIT is Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency. It is retained as UK law by effect of the European Union (Withdrawal) Act 2018 and amended by the Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019 (SI 2019/534).

Ofgem has the power to monitor, investigate, enforce and sanction under the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013.