Trusted account list, the differentiation between trading and holding accounts, 24-hour delay in effecting transfers, view-only access to the accounts enabling such services as “safe zone” as well as strict rules on finality of transactions entered into the registry are some of the measures that could contribute to the enhancement of the security of the registries and, consequently, of the assets of the account holders. Some of these new instruments are designed as mandatory, but other will require decisions to be made by the emissions market participants depending on the politics and strategies they pursue.
A Union Registry will be established for the trading period of the Union emissions trading scheme commencing on 1 January 2013 and subsequent periods. The draft Regulation at issue makes ,however, also relevant amendments to the Regulation No 920/2010 (which substitutes the Regulations No 2216/2004 and No 994/2008 with effect from 1 January 2012), so the most of the abovementioned, positive, it seems, modifications will probably be available for account holders soon.
The protection of the good faith acquirer of emission allowances and finality of transactions in the new Registry Regulation – do they cause traders feel more comfortable?
The surrender of allowances initiated in error - the only reversible transaction pursuant to the draft of the Commission Regulation establishing a Union Registry of emission allowances
Newly designed measures for enhancements of the security of accounts in the registries envisioned in the draft of the Commission Regulation establishing a Union Registry for the trading period commencing on 1 January 2013, and subsequent trading periods, of the Union emissions trading scheme pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision 280/2004/EC of the European Parliament and of the Council and amending Regulations (EC) No 2216/2004 and (EU) No 920/2010 (hereinafter referred to as ‘Regulation’) should be carefully considered by the account holders. Beneath there are mentioned certain areas for possible considerations and, consequently, for decisions of account holders in the light of the possibilities offered by the new, upcoming provisions.
1. Trusted account list and trading accounts
The so-called ‘trusted account list’ conception is interlinked with the planned introduction of the separate type of the Registry account i.e. trading accounts (in addition to the existing so far holding accounts). As follows from Articles 60 and 61 of the Regulation, transfer of allowances or Kyoto units from holding account will only be possible to an account on the trusted account list of the account holder.
The said restriction will not apply to the trading accounts which will be available for carrying out transfers of allowances or Kyoto units to all holding as well as trading accounts in the Union Registry.
The Regulation states in Article 24 that both accounts: holding account and trading account may have a trusted account list in the Union Registry. It could be inferred, however, from the combination of the said provisions that setting a trusted list for a holding account will be mandatory to enable transfers, while for trading account only optional.
The second important feature of the ‘trusted list’ concept is in liaison with the functioning of additional authorised representatives. Generally, each account must have at least two authorised representatives (with the exception of the verifier account which is required to have at least one authorised representative). The authorised representatives shall initiate transactions and other processes on behalf of the account holder.
The new requirement is that an account must also have at least one additional authorised representative whose approval is required in addition to the approval of an authorised representative in order to initiate a transaction (the earlier Regulation No 920/2010 allowed for additional authorised representatives, but their establishment was only optional, in the new provisions it is mandatory).
The approval of an additional authorised representative shall not be required, however, for transfers to an account on the trusted account list of the account holder.
The Regulation envisions, furthermore, that accounts held by the same account holder shall be automatically included on the trusted account list. The national administrator shall approve changes to the trusted account list upon verification that the changes have legitimately been requested by the account holder.
2. 24h delay in effecting transfers
As regards the execution of transfers the Regulation envisions the application of a delay of 24 hours between initiation and the transfer being communicated for finalisation for all transfers of allowances and Kyoto units. During this 24-hour delay an account representative may propose to the national administrator the cancellation of the transfer on the grounds of a suspicion that the transfer was initiated fraudulently (Article 36 of the Regulation).
3. View-only access
In addition to the described in point 1 above types of representatives accounts may also have authorised representatives with view only access to the account (under the earlier Regulation No 920/2010 the only-view-the-account feature was a possible option for additional authorised representatives).
Such a measure will enable additional services offered by certain market participants like ‘Safe Zone’ trading market launched by BlueNext in May. According to information on the Exchange’s website ‘Only units whose chain of title can be traced back to their source will be allowed to trade thereafter on BlueNext. This will create a significant barrier to current and future fraud for BlueNext and its members; and help restore the stability and strength of the Spot price. To achieve this, members of the exchange must give Read-Only access to their operator allowance accounts. BlueNext will then securely trace back the chain of title back to its source of issuance. Only by tracking the chain of the title to the source can the market be assured that there is no question to a permits’ integrity and hence value or ability to be used as a compliance instrument’.
4. Finality of transfers
Subject to very limited exceptions under the Regulation transfers of allowances and Kyoto units in the Registry are final and irrevocable upon finalisation of the transaction. Pursuant to the Article 37(2) ‘no law, regulation, rule or practice on the setting aside of contracts and transactions shall lead to the unwinding of a transaction that has become final and irrevocable under this Regulation’. Article (37(1) stresses that ‘holding an allowance or Kyoto unit in the Union Registry shall constitute conclusive evidence of the account holder's ownership of the allowance or Kyoto unit. Transfer of an allowance or Kyoto unit in the Union Registry shall constitute conclusive evidence of the change of ownership of the allowance or Kyoto unit’.
The one of the sparse exceptions relates to a transaction completed after a relevant judicial or administrative authority has handed down a decision opening insolvency proceedings in respect of the account holder initiating the transaction.
Such severe rules pose obviously unavoidable risks to the account holders. The question arises how such events as mistakes, errors, but also misrepresentations in transactions would be treated on the ground of the Regulation and earlier effected transfers.
But it seems that the exposure of account holders to the above-mentioned risks was sacrificed to a greater value of legal certainty in emissions trading market.
Recital (12) in the preamble to the Regulation underlines that allowances and Kyoto units exist only in dematerialised form and are fungible, so their ownership should be established by their existence in the account of the Union Registry in which they are held. Moreover, to reduce the risks associated with the undoing of transactions entered in a registry, and the consequent disruption to the system and to the market that such undoing may cause, it is necessary to ensure that transactions cannot be reversed, revoked or unwound, other than as defined, after a moment set out by the rules of the registry. Regulation makes the reservation that it shouldn’t prevent an account holder or a third party from exercising any right or claim resulting from the underlying transaction that they may have in law to recovery or restitution in respect of a transaction that has entered a system, e.g. in case of fraud or technical error, as long as this does not lead to the reversal, revocation or unwinding of the transaction.
The introduction of the said rules to the Union legal order would be a crucial change that – as it seems – would help to restore confidence in European Union Emissions Trading Scheme, infringed so much by the recent thefts. As opposite to the modifications mentioned above in points 1-3 (which are of only technical character) the new rules on finality of transfers are of a fundamental significance, and will have an effect on many consequent legal issues.