On March 18, 2024, the Council of the EU adopted a new law to protect the wholesale energy markets against market manipulation and to strengthen surveillance of wholesale energy markets to ensure open and fair competition.

The European Commission proposed the rule changes in response to the high prices and extreme volatility of energy prices in 2022, to prevent the risks of market manipulation and insider trading.

This forms part of an overall reform of the electricity market in Europe and amends Regulation (EU) No 1227/2011 (the REMIT Regulation) and the Regulation on the establishment of the European Union Agency for the Cooperation of Energy Regulators (ACER), Regulation (EU) No 2019/942.

Overview of rule changes

The new regulation gives ACER the right to investigate cases with a cross-border dimension, where at least two member states are affected, carry out on-site inspections, issue requests for information, and collect statements. ACER will also be able to take decisions regarding authorizations or withdrawal of authorizations which relates to platform’s managing inside information and oversight of registered reporting mechanisms.

ACER will have new powers to impose periodic penalty payments where failures are noted in compliance with on-site inspection decisions and requests for information. However, ACER will not have the power to impose fines for infringements, breaches of prohibitions or substantial obligations. Powers to apply penalties for REMIT infringements will remain with the Member States.

The national regulatory authorities will be able to object to the exercise of ACER’s investigatory powers when these have been formally initiated or an investigation has been conducted based on the same facts. Authorities will have a maximum of three months to object.

The regulation also requires that EU wholesale energy market players resident in a third country appoint a representative in a member state in which they are active.

Q&A on the proposals

GRIP spoke to experts on the wholesale energy markets to discuss changes to the rules and what they mean in practice for firms operating within the market. They discuss enforcement powers, compliance and surveillance monitoring, and the new rules around algorithmic trading and third-country participants.

Aviv Handler is the managing director at ETR Advisory. He is a specialist in the regulation of the commodities and energy market providing advice and services to the energy and commodity markets in the understanding, preparation and implementation of Energy and Commodity Market Regulations. 

Anna Carrier is a senior government and regulatory affairs advisor based in Brussels, as part of the government relations and public policy (GRPP) and financial services practice at Norton Rose Fulbright.

How is the market reacting to the rule changes and how will firms comply?

Handler said the market has been discussing the rule changes for some time and that they have been getting ready to implement the changes.

We asked Carrier to explain the changes to REMIT. She said: “The Regulation on Wholesale Energy Market integrity and transparency (REMIT) is not new, it has been in place for over a decade and firms active in European energy markets are familiar with its requirements. Registered market participants should have appropriate compliance arrangements in place to allow them to meet the relevant REMIT requirements, including transaction and fundamental data reporting obligations as well as rules regarding inside information disclosures.

“So, from that perspective most of the changes to REMIT will require some adjustments from firms to comply rather than a massive overhaul of their existing arrangements.”

Handler explained what actions firms have actually taken to prepare for these changes. He said: “The details (in the form of delegated acts, implementing acts and guidance) have not yet been written so many are waiting for this to start.” However, in terms of monitoring, he said that the changes “increase the requirements to monitor overall” and “many in the market have been improving their facilities in the light of best practice and increased fines”.

What are the new rules around algorithmic trading and third-country participants?

Carrier explained the new algorithmic rules. “Some of the new rules, such as controls for algorithmic trading in wholesale energy products, will only be relevant to whose market participants who engage in such trading techniques. The new REMIT requirements in this space are a light-touch version of the framework that has been applicable in the financial markets under MiFID II for a long time, the revised REMIT extends these controls to algo trading in wholesale energy markets.”

Handler added that algo trading controls will comprise of “all ‘the usual’ stuff, similar to exchange rules and some of MiFID II RTS 6.”

RTS 6 addresses issues covering the specific requirements for investment firms engaged in algorithmic trading. With regards to MAR, the obligation is reinforced in terms of monitoring behavior associated with illegal use of algorithms (for example, pinging). The regulation specifies that firms must conduct real-time monitoring and regularly review their automated alerts to minimize false positives and negatives.

Handler warned, “those outside the EU should note the requirement to have a representative in Europe and watch for useful arrangements to comply with this”. For example, market participants could “declare an office in the EU”.

Carrier agreed and said the new requirement for third-country market participants is a “notable change that does concern the industry”. She gave an example. “Market participants without EU establishment and accessing the markets on a cross-border basis, [will need] to designate a representative in the EU that will be authorised to act on their behalf.”

She added: “It remains to be seen how this requirement will be implemented in practice but there has been a lot of focus on trying to adopt a solution that will be workable from both an industry and the regulators’ perspective.”

What are your thoughts on the new enforcement powers?

We questioned Handler about whether national regulatory authorities are taken seriously within the industry, asking do they really enforce much and have a consistent approach?

“Yes,” he said. “National regulatory authorities (such as energy regulators) are constantly engaged in enquires and sometimes enforcement actions against Market Participants.” For example, see the ACER website and on Handler’s blog – More REMIT fines in Romania.

Carrier said: “In terms of enforcement, one of the key areas of the REMIT review was a proposed strengthening of the ACER’s enforcement powers, and indeed the Agency has been granted new investigatory and enforcement powers in respect of breaches of REMIT with a cross-border element. These are yet to be exercised in practice once the revised legislation becomes applicable but given the cross-border nature of the wholesale energy markets, we will likely see such enforcement cases in the future.”

So do the new enforcement powers really have teeth as member states retain powers to fine for breaches? Handler said: “REMIT II gives new powers to ACER to follow up with certain investigations, including cross border ones and those where the local regulator cannot pursue the case. It adds to the existing enforcement structure. So I would say there are now more teeth.”

Energy markets are challenging to supervise and regulate effectively. Any steps which lead to fair and transparent markets with some more credible deterrent for abuse should be welcomed.

We will see if the actions which follow reflect the tougher regulatory approach.