Nearly one year after the introduction of the EU Market Abuse Regulation (MAR), energy firms continue to misjudge the leniency of regulators, according to a KPMG expert.
Rob Weston, Managing Director at the Trading Risk Solutions (TRS) practice of KPMG, says regulators will not treat energy firms differently just because they have historically been free from regulatory scrutiny.
“Energy firms cannot ignore MAR or MiFID2 any longer and the regulators will not treat them differently just because they are energy firms,” Weston says. “When it comes to enforcement there cannot meaningfully be differing standards applied to energy firms as compared to financial services firms.”
MAR requires firms that engage in the commodity markets to have processes and controls in place to monitor the risks of intentional or perceived market abuse by employees. Energy firms must therefore need to regularly monitor their trading systems, emails, messages and voice communications.
“For energy firms, this is a big shift,” says James Maycock, Director within the Energy and Commodity Trading Risk and Regulation Team. “The banking world has long been required to surveil their own, often client-facing traders in a way that has, until recently, largely bypassed energy firms who trade on their own account.”
The upside is that energy firms do not have to bring legacy systems inline with the new regulations, like banks, and can purchase new systems or technology that fits with their existing platforms.
Moreover, energy firms can learn from banks. “Banks have spent a lot of time investing in improving old platforms and testing new ones. They know what works and what doesn’t,” Weston says. “Energy firms can leverage this experience and reduce their costs.”
The challenge for energy firms is to bring all this knowledge together and demonstrate that they have a plan in place—especially considering that a number of the compliance deadlines are now overdue.