“REMIT shouldn’t be taken lightly”

Dr. Susann Funke knows the REMIT regulation like the back of her hand and supports companies with implementation.

Dr. Susann Funke knows the REMIT regulation like the back of her hand and supports companies with implementation.

Interview with Dr. Susann Funke

With the REMIT Directive (Regulation in Market Integrity and Transparency), the European Union has put clear guidelines in place for increasing the level of transparency within energy trading. Since 2011, the regulations on how to deal with insider information and market manipulation must be applied, and from 2015 companies will have to meet additional comprehensive reporting requirements. Yet many companies, especially small municipal utility companies and energy firms, but also industrial enterprises, have not yet begun implementing this binding directive. Dr. Susann Funke, a specialist in the field of regulation & compliance at the Executive Partner Group, explains why the rapid integration and implementation of REMIT within companies is so important, why there are barely any exceptions, and which new regulations will become mandatory in the near future.  

WINGAS: What progress have you observed with the implementation of REMIT in the energy market?
Dr. Susann Funke: Large companies have made great progress with the implementation. With the smaller companies, on the other hand, not that much has happened yet in many cases: most of them have just begun with the analysis. The crucial issues for them are which products are affected and the technical implementation of the reporting requirements. Many utilities initially expected they would benefit from an exception clause, but such a clause does not exist.

The decision on whether a company or municipal utility falls within the REMIT regulation is based on which criteria?

It depends whether it trades in energy wholesale products as defined by the directive. In practice, every energy and industrial company that engages in commerce with physical products such as gas is affected.

You also supported WINGAS with the implementation of the regulations. How did you do this?
We trained nearly all the WINGAS staff on how to handle insider information. They know the guidelines and what the reporting procedure is for potential insider information. WINGAS has nothing to fear from an inspection by the authorities, since all the requirements have been implemented. WINGAS has also now set up a special section on the homepage where insider information could be published if there was any.

Which new regulations from the EU will become mandatory in the near future for companies?
The EU is currently working on another REMIT implementation act, which is expected in the coming months. In addition, the “Registered Reporting Mechanism” (RRM) is due to be enacted in the middle of the year. Both these regulations will include details on transaction reporting, for example which data fields have to be reported in which format and in particular what companies need to watch out for when outsourcing the reporting process. The question of liability is extremely interesting and relevant here.

What consequences do these requirements have?
The transaction data have to be reported from 2015. That is mandatory across the board, it creates transparency but is also associated with costs. The IT costs are greater for small companies. Even small municipal utilities must deal with the regulations and the question of resources. I estimate that this requires one full-time position, because the time needed for reporting the transaction data, and, for example, for checking that the data fields have been filled out correctly and that the corresponding identification numbers entered, should not be underestimated. This is all the more true if a company decides to complete the transaction data reporting manually and not with IT-based systems. Overall REMIT shouldn’t be taken lightly since there are also penalties. The market transparency office (editor’s note: the agency responsible for compliance) can check years later whether the reporting has been carried out correctly.

What are the most important points that energy companies have to pay attention to when implementing REMIT?
First of all there has to be a pre-analysis showing to what extent the company is affected by REMIT. Then the company must look at which products it trades in and which contracts it has. That defines the type of reporting as well as the data fields that have to be filled out in future. In addition, a certain routine or automatization must be determined and used for the reporting. That is essential because this data volume is barely manageable manually.

What are the typical miscalculations that you encounter?
Many smaller municipal utilities believe that there is an exemption for them. That is absolutely incorrect.  Such an exemption clause only exists for end customers since they are not trading and represent the end of the supply chain. The consumption upper limit is 600 gigawatt hours per year. If you have customers that exceed this value, they are also subject to the REMIT reporting requirements. Because even here it is about the general transparency in the market. It is a little similar to the television license principle: If you have a TV in the cellar you have to pay, even if you don’t use it. Even the theoretical possibility of receiving television signals oblige you to pay. In the case of municipal utilities, this is the REMIT reporting obligation.

What consequences should energy companies expect?
Not reporting or forgetting to report is an administrative offence and can lead to high fines. In the worse case that can be up to € 200,000. But smaller fines can also mean hit municipal utilities hard. Prison sentences only apply in the case of market abuse, such as market manipulation. As you can see, it’s never boring, and companies should expect new challenges.

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