The thorough re-calibration of energy trading licensing regime is looming. Besides standard registration required by the REMIT Regulation, the wholesale energy market participants will have the option for choosing either Europe-wide passport for wholesale trading in electricity and gas or MiFID passport – depending on the projected extent of business activity.
Market participants remaining beyond the scope of MiFID, will have to, however, regularly and on an ongoing basis, monitor exemptions foreseen by this Directive (currently undergoing the revision under the so-called MiFID II and MiFIR procedures) and the character of contracts concluded on the market so that not to run the risk of a charges of providing financial services without proper authorisation.
CEER final propositions for EU-wide passport
In the article “Europe-wide passport for wholesale trading in electricity and gas – still fragmentary perception of the production chain” I referred to the issue of elaborations taken up by the Council of European Energy Regulators (CEER) in order to reduce the actual differences between the EU Member States with regard to the regulatory regime and administrative requirements applicable to wholesale energy traders. It is probable that the rules in that regard will soon be harmonised across the EU and the wholesale energy market participants will dispose of the possibility to be subject to different market access regimes – both EU-wide but being differentiated by distinct product covering.
When it comes to wholesale energy market access regime, the rules are not currently harmonised in EU Member States. The research mandated by CEER showed very diverged licences’ requirements ranging from no-trading-licences-at-all approach (like in Germany for either financial or physical wholesale trading, a licence for European Energy Exchange (EEX) market participant excepting) to jurisdictions where access requirements seem overly onerous.
CEER Final Advice on the Introduction of a Europe-wide Energy Wholesale Trading Passport Ref: C11-WMS-15-04b of 8 November 2011 (http://www.energy-regulators.eu) recomended the following requirements and administrative standards for a wholesale energy market access regime:
- All trading companies active on the market should be known, including some basic information such as the name of the company, field of activity and the ultimate ownership;
- Persons effectively running the trading company (management) should be obliged to provide certain information, for example their criminal record;
- If there is a fee for obtaining a trading licence this should be cost-based;
- The application procedure and its maximum duration should be Europe-wide standardised;
- Trading companies should demonstrate their technical, financial and organisational capacity to fulfil all energy regulatory guidelines;
- A branch office, collateral amounts, an economic success check or any provisions relating to security of supply should not be required.
The wholesale trading passport vs MiFID licence
As a result of the proposed changes the energy traders in the EU will be faced with a challenging dilemma of a business and strategic character, either to restrict themselves to wholesale energy trading licence tailored pursuant to the above-cited CEER suggestions (granting access to the entire EU market) or apply for the MiFID licence under the Directive 2004/39/EC - also EU-wide, but subjecting energy trader to the much stricter regulatory regime of financial markets (capital adequacy requirements including). The CEER Final Advice mentions that the second of the above options have been so far utilised only by a few wholesale energy traders.