Eurelectric amendments on REMIT

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Eurelectric Amendments on REMIT

 

Eurelectric fully supports the objective of REMIT regarding the integrity and transparency on the energy wholesale markets.

 

  1. Eurelectric considers that the current REMIT already provides a clear and robust framework to prevent market abuse and increase confidence of consumers and market participants in the market.

 

  • We understand that the ongoing energy crisis may trigger political concerns regarding the transparency & integrity of energy markets and willingness to avoid future critical situations. In this regard, we understand the European willingness to assess the need to strengthen REMIT enforcement and to extend the current powers of ACER. This could however be a major issue for NRAs, members states and even market participants. It’s of utmost importance that ACERs new investigatory powers are limited to what is necessary and proportional to ensure a fair balance between the policy objective and the protection of fundamental rights. Beside, the European Commission does not demonstrate the urgency of such a wide revision, which objectives and scope are quite difficult to understand. There is no demonstration of a need for the well-functioning of wholesale energy markets and European regulators have not, in this period of crisis, identified any threats to transparency or market manipulation that would justify such a reform. Nor has the Commission demonstrated how the proposed changes will increase the trust of market participants and consumers in wholesale markets. REMIT has proven to be an efficient tool against market manipulations and hence, the energy crisis shouldn’t be use as pretext to significantly modify the actual regulation without a wise impact assessment.

 

  • The provisions aiming at enhancing REMIT enforcement and ACER powers represent a small part of the REMIT Review. It is of the utmost importance to bear in mind that this review contains a large number of amendments directly impacting the implementation of REMIT by market participants. Indeed, this revision proposes to extend all the boundaries of this regulation (without any prior discussion or consultation on the objectives and expected results): the scope of application, the obligations and requirements, the responsibilities and prerogatives, and the infringements. These are the most critical aspects for market participants, and our amendment proposals below focus on those issues.

 

  • Indeed, no more than 10% of the amendments proposed by EC concern REMIT enforcement and ACER powers. 90% of the amendments address transparency and reporting issues. In this regard, it would be critical if these provisions that aim at improving market transparency have, at the end of the day, a negative impact on this market transparency since they bring too many uncertainties, risks or even impossibility to comply with because they just could not be implemented.

 

  • Indeed, more than 10 years after its entry into force, REMIT still contains definitions and notions that need to be clarified to be properly implemented. This still creates important risks for market participants and is detrimental for the transparency and integrity of the wholesale energy markets.

 

  • In this regard, Eurelectric would have welcomed a REMIT review bringing clarifications and leading to less risks for all market participants and for wholesale energy markets, hence contributing to enhanced market integrity and transparency of wholesale energy markets.

For example, the REMIT review should focus on:

  • Clarify the definition of market participants in order to address the situation of actors such as Storage System Operators (SSOs) and LNG System Operators (LSOs) ensuring timely disclosure of inside information possessed by such operators.
  • Clarify the definition of inside information by the introduction of a notion of a publication’s thresholds which definition process would have been defined by REMIT. Given the fact that the definition of Inside Information is interpreted differently from market participant to market participant as well as from the individual regulators, setting unified thresholds for the disclosure of inside information would eliminate already a large part of the uncertainty.
  • Clarify the legal framework of inside information publication and responsibilities of the Inside Information Platform (IIP) and the market participants, in particular in the event of an IT failure of the platform leading to a delay in publication or an alteration by the IIP of data transmitted by the market participant.

 

  1. REMIT is a very complex and technical piece of legislation. What is first or foremost expected by market participants is to have a robust regulation, easy to understand and to implement in order to guarantee a strict compliance. The most critical situation would be that this review undermines the implementation of REMIT and have a negative impact on wholesale market transparency and data reporting. In this respect, we have major concerns:

 

  • The objective, the scope and even the feasibility of the new provisions raise questions. Some of these provisions even add confusion or are not sufficiently precise or precisely addressing the effective REMIT gaps or issues to be properly understood and implemented by market participants.

 

Please find below an overview of the most concerning provisions:

 

  • Overlap between financial and energy regulation (Art 1): The introduction of numerous financial regulation components raises concerns about their implementation's viability and is likely to cause confusion. These financial concepts frequently cannot be applied in the physical energy world and do not consider the operational and industrial realities of the energy sector. In addition, the removal of the explicit carve-out of financial instruments may create unnecessary overlap in terms of supervision and lead to diverging case law between financial and physical regulators in relation to the same practice.

 

  • Definition of inside information (Art. 2.1) which brings confusion and risks being not properly understood and implemented:
    • The qualification of inside information is a cornerstone of REMIT and it is therefore of the utmost importance to reach a definition which is unambiguous and implementable by markets participants.
    • Amendments of article 2(1) introduces notions that are not defined or not transposable to the energy sectors, raise major operational issues regarding their implementation, lead to shift responsibilities without rationale à see amendment proposals 8 to 10.

 

  • Publication on Inside Information Platform (Art. 4.1): proposed amendments are not addressing the effective issues and could not be properly implemented:
    • Article 4.1 establishes the obligation for market participants to publish their inside information on a platform certified by ACER and Article 4a introduces provisions relating to the authorization and supervision of these platforms.
    • In principle, we are in favour of introducing provisions on this subject, but the provisions proposed in this revision raise many operational and legal questions for both the IIP and the market participants.
      • It would be for example impossible for IIP to comply with some provisions (e.g. redirection of reporting flows to other IIP).
    • These new provisions also do not provide for any possibility of derogation, nor do they take into account the operational constraints of market participants. Indeed, choosing or changing the platform requires IT developments for both the market participants and the platform. It seems important that:
      • (i) these provisions enter into force after a transitional period to be specified in the implementing act,
      • (ii) the formats and nature of the publications be defined in coordination with the market participants, notably during the development phase of the implementing acts,
      • (iii) a principle of derogation be introduced to cover situations where market participants find themselves materially unable to publish on these platforms (technical limitation of the platform, withdrawal of authorization, unavailability of the platform, etc.) (e.g. publication on the company's website as a back-up), and (iv) the REMIT Regulation should clearly define the respective responsibilities of the IIP and the market participant, in particular in the event of an IT failure of the platform leading to a delay in publication or an alteration by the IIP of data transmitted by the market participant.

 

  • Definition of market manipulation (Art.2): amendments proposed are not clear since they bring more uncertainty. The notion of “engaging in other behaviour” was deemed to cover the lifecycle of orders. It cannot be understood without this explanation. It would have been clearer to mention the steps of the lifecycle of orders: issuing, modifying and withdrawing. Please see amendment proposals 12

 

  • Definition of wholesale energy products (Article 2 (4)): amendments proposed are very unclear and do not address the issue targeted by the European Commission. The intended objective was to capture market coupling allocations with third country firms, but we do not understand how this amendment could address this issue. In the meantime, it will cause legal insecurity and compliance risks since it may capture in theory all LNG cargoes that are sailing in the ocean even if it does not result in an effective LNG delivery in the Union. Please see our amendment proposal 13

 

  • REMIT is a sector-specific regulation that is intended to take into account the specificities of the energy markets, in particular the fact that industrial assets are behind wholesale energy products and these assets are subject to other constraints such as those relating to safety or environment. However, the introduction of numerous elements of financial regulation is likely to create confusion and puts into question the feasibility of their implementation. These financial concepts are often not transposable and do not address the operational and industrial reality of the energy sector.

 

For example, we are particularly concerned by the following provisions:

  • New definition of "persons professionally arranging or executing transactions" (Art 2(8a)), and "organized market places" (Art 2(20)), and extension of the definition of "market participant” (Art 2(7)) and Persons Professionally Arranging Transactions (PPAT) (Art 15) : these new definitions are rather broad and unclear, particularly as regards the actors involved and raise questions as to their scope (article 2.(7), (8a), (20)) and as to the circular reference set up by this review. Most of these amendments erase the delimitation between the different REMIT players creating unnecessary confusion, which could lead to damaging unclarity of their obligations under the Regulation. Please see our amendment 15
    • Definition of Inside Information: Article 2 (1): the European Commission proposes to introduce provisions regarding information conveyed by a client and intermediate steps of protracted processes: it is not relevant to transpose these notions to the energy market. We can even mention that MAR Review mentioned that information on intermediate steps of protracted process may mislead investors rather than to contribute to efficient price formation and address the information asymmetry. Qualification of inside information is a cornerstone of REMIT, and therefore it is of the utmost importance to reach a definition which is unambiguous and implementable by market participants. For further details please see our amendment proposals 8 and 9.

 

  • This revision raises critical issues in terms of subsidiarity and jurisdictional framework. While these new provisions will undoubtedly have an impact on market participants, we believe that Member States and national regulators seem to be more legitimate in conveying messages to MEPs. EURELECTRIC had the opportunity earlier this year in the EC consultation to support that the power of investigation should remain a national prerogative.

 

  • Finally, we are concerned by the proposal to make ACER’s guidelines and recommendations de facto binding without proper stakeholder consultation. Please see our amendment 31.
    • We understand that this review sets a principle of binding ACER's guidelines and recommendations and the establishment of a compliance supervision regarding the implementation of these guidelines and recommendations.
    • We raise the question of legality of having binding guidelines from ACER. Indeed, in accordance with case Law of CJEU 15 July 2021 Fédération bancaire française c/ Autorité de contrôle prudentiel et de résolution (Aff. C-911-19), it is likely that ACER guidance could not be binding, and we propose to expressly indicate that the guidelines and recommendations issued by ACER are not binding. Moreover, the legal nature, the scope of the obligations and the consequences associated
  1. i) to the obligation of market participants and national regulatory authorities to make every effort to comply with these guidelines and recommendations,
  2. ii) to the obligation of market participants to report whether they comply with these guidelines and recommendations, and

iii) to the principle of complying or explaining which applies to the NRAs are not clear and are not consistent with the non-binding nature of the guidelines and recommendations. There could not be any compliance requirements regarding a non-binding documentation. Finally in order to keep a constructive approach of REMIT, we propose that market participants are systematically consulted on the evolution or on the introduction of new guidelines and recommendations in order to take into account operational impacts and experience feedbacks.


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