Source: KPMG Corporate Treasury News, Edition 45, July 2015
For most finance departments, "regulation" has long been a concept that only banks seem to talk about. With EMIR making itself felt and the challenges of REMIT and MiFID II bearing down on us, however, it should by now be clear to everyone that regulation has spread to industrial companies too – and is here to stay. It's time to face up to the challenges.
When this article was published, it was less than three months until October 7, the day when reporting exchange-traded energy and gas contracts to the European Agency for the Cooperation of Energy Regulators (ACER) will become compulsory. Yet many companies seem surprisingly laid-back about the impending deadline: The sectors affected are not exactly a hive of activity. One reason could be that REMIT gives companies the chance to outsource reporting to the relevant broker or organized marketplace (OMP). Companies themselves would then no longer have to worry about technical implementation – an easy solution.
Or is it? Even it farmed out the actual process of reporting, a company would still remain responsible for the full reporting of all relevant data fields – and hence for compliance with legal stipulations. Moreover, outsourcing to a wide range of OMPs could lead to a heterogeneous reporting landscape and make it difficult to keep a clear overview. Since there are no universal standards for data editing and reporting, it would not be easy to aggregate and synchronize all the reported data. Companies keen to maintain control of the data they report to ACER would therefore have to invest in substantial running costs to stay on the ball. This seems to be a rather laborious approach, but would at least be feasible.
Looking six months further ahead, it nevertheless becomes apparent that the strategy described above is both short-sighted and flawed. Why? Because the remaining transactions – including OTC contracts and complex energy supply contracts – will also have to be reported to ACER starting on April 7, 2016. In particular, this will affect OTC contracts within a corporate group or between energy companies. Quite apart from the fact that there are no organized marketplaces to handle the reporting of these contracts, the contracts themselves are far more heterogeneous, which makes reporting all the more difficult.
Given this situation, playing a wait-and-see game will almost inevitably see companies fail to comply fully and accurately with all the legal requirements. Providers of reporting solutions are rubbing their hands in anticipation, and can indeed add considerable value in the process of implementation. Yet they too are unable to take the fundamental burden off the backs of the companies concerned: the burden of creating a structured basis in response to every form of regulatory requirement. Modern finance departments don't like flying by the seat of their pants through a jungle of regulations, and rightly so: They need to lay a firm foundation that makes the coming regulatory demands more manageable and less daunting. The key lies in central, structured data storage – the common denominator for all these requirements.
Only recently, EMIR was causing a regulatory stir in industry and the energy sector. Today it is REMIT, tomorrow MiFID II and whatever else follows on from it. The earlier companies face up to the challenge of central data storage, the sooner they can dispense with the cost of insular solutions and build a central platform from which to meet regulatory requirements. Why wait any longer?
Author: Paul Ratzenböck, Manager, firstname.lastname@example.org
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