UK Government Proposes New Insider Dealing Powers In The Wholesale Energy Markets

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The Department of Energy and Climate Change published a Consultation on 6 August 2014 seeking views on its proposals to introduce new criminal offences for insider dealing in and the manipulation of the wholesale energy markets. This forms part of the UK Government’s continued efforts to ensure the proper functioning of the wholesale energy markets and to strengthen the UK enforcement regime in line with the EU Regulation on Wholesale Energy Markets Integrity and Transparency (“REMIT”), prohibiting insider dealing and market manipulation in respect of the wholesale energy markets.

REMIT refers to the wholesale energy markets as encompassing both commodity and derivative markets, including regulated markets, multilateral trading facilities, over-the-counter transactions and bilateral contracts. As a result, certain trading activity in the wholesale energy markets does not relate to qualifying investments admitted to trading on a prescribed market and therefore does not come within the scope of market abuse in the financial sector.

The Financial Conduct Authority (“FCA”) regulates commodity derivatives, but not the underlying physical markets and has the power to bring enforcement action (both civil and criminal) against traders who breach the regulation on energy derivatives in an FCA regulated market. The majority of trading regarding gas and electricity does not take place on markets regulated by the FCA. If a similar derivative was traded on a platform coming within the scope of REMIT, only the Office of Gas and Electricity Markets (“Ofgem”) currently has the power to enforce civil penalties. The absence of criminal penalties in the energy markets for behaviours almost identical to those subject to criminal penalties in the financial markets creates a risk that wrongdoing is directed towards the energy sector. The Government’s proposals are aimed at addressing the gap between the regulation of the financial and wholesale energy markets.