How many authorisations are necessary to make emissions allowances transfer request fraud-resistant and, concurrently, non-bureaucratic?
§ 95921. Conduct of Trade (draft)(a) Transfers of Compliance Instruments Between Accounts.
(1) The accounts administrator will not register a transfer of compliance instruments between two registered entities into the tracking system unless:
(A) One individual who is the authorized account representative or an alternate authorized account representative of the source account for the transfer submits a transfer request, confirmed by another alternate authorized account representative for the same entity, to the accounts administrator within 48 hours of settlement of the transaction agreement for which the transfer request was submitted;
(B) The authorized account representative or an alternate authorized account representative for the destination account submits a confirmation to the transfer request to the accounts administrator within 24 hours of receiving the transfer request;
(C)The transfer is between holding accounts and/or an exchange clearing holding account.
(D) The Executive Officer has determined the transfer request and the transaction for which the transfer request was submitted meet the requirements of this article based on the information available at the time of approval.
(2) Transfers initiated by the Executive Officer do not require confirmation pursuant to section 95921(a)(1)(B).
(3) Transfers between a single entity’s holding and compliance accounts do not require confirmation pursuant to section 95921(a)(1)(B).
The recent Registry Regulation amendments (Article 21 of the Commission Regulation No 1193/2011 of 18 November 2011) adopted the principle that generally, the approval of an additional authorised representative is required, in addition to the approval of an authorised representative, in order to initiate a transaction, except for transfers to an account on the trusted account list in the Union Registry of the account holder (insignificant exceptions omitted). This was introduced as a reaction to the wave of registry safety violations which ended in allowances being stolen from accounts which in consequence led to multiple judicial disputes (see for instance: Transfer of EUAs as proof of ownership).
This indicates, currently under EU ETS rules the authorisation of two persons makes the transfer viable. The new draft amendments to the California cap-and-trade regulation (see: Major overhaul of the California cap-and-trade - linkage with the Quebec scheme and the KYC-checks substitution for the beneficial holding disclosure provisions) go beyond that.
Draft Changes to Transfer Process (§ 95921 - see: box) propose to replace current “Two key” process by so-called “Push-Push-Pull” method where:
- two authorized or alternate authorized account representatives for the source account file transfer request,
- one authorized or alternate authorized account representative for destination account confirms transfer,
- there are time-limits 48 hours for the filing of the request, 24 hours to confirm.
The collaboration of three persons is in effect necessary to make the transfer.
The new system is designed to prevent theft or other unauthorized transfer, however, market reaction to these proposals was sceptical (see contributions on the ARB website).
The first impression that comes to mind is the question whether such unprecedented measures are really necessary to safeguard the registries. The rational approach may be, however, that this issue should be leaved to the competence of persons made responsible for this task (that is the registries administrators). If the confirmation from the destination account enables to avert some significant and by far undiscovered threats to the safety of accounts maybe this measure is really worth of considering.
This reflection is supported by the fact that recent events revealed that not all companies were able to effectively prevent theft and fraud through their own, internal control systems.
Another issue is, however, the setting up of the deadlines associated with a transfer—48 and 24 hours, respectively—to report a settlement of the transaction to ARB and to confirm the transfer receipt. In the present wording the deadlines don’t refer to business days, and are additionally rather short. On the other side, extending these timeframes would, in my opinion, expose the parties to excessive legal uncertainty whether the transaction is finalised and can be relied upon. To strike the right balance between these main values (legal certainty and the registries safety) isn’t, undoubtedly, the easy choice. And the need to avoid overly bureaucratic and onerous burdens shouldn’t be neglected as well.