Energy market regulator Ofgem has been given new powers under REMIT legislation that will allow it to inspect premises, seize data and levy higher financial penalties.
Companies that are seen to be trying to manipulate markets will face unlimited fines, it has been announced, as the industry partakes in a crackdown on such practices.
The REMIT (Regulation of Wholesale Energy Markets and Transparency) legislation is to be introduced to parliament just weeks after raids were carried out on major oil companies in a bid to find evidence of corruption.
What’s more, the European Commission is also keen to introduce a system in which companies must make their transactions more transparent. This move would see such organisations forced to report details about their trading of oil, gas and power when it occurs over the counter.
Concerns have been raised in the wake of the Libor scandal that saw the banking world rocked that a similar incident could happen in the energy industry. This is heightened by the fact that the energy markets are relatively unregulated and vulnerable to energy companies and financial institutions that may wish to take advantage.
These fears came to a head after an incident at one of the price reporting agencies – ICIS-Heren. A whistleblower claimed to have seen attempts by corrupt traders to submit false data to the price reporting agency. A probe by Ofgem was subsequently carried out as well as the then Financial Services Authority (now the Financial Conduct Authority).
Last month, amidst accusations of price fixing, the authorities demanded that the competition authorities inside the EC launch raids on oil companies BP, Statoil, Shell and Platts – another price reporting agency.
This came after even earlier concerns were raised surrounding price reporting agencies and oil markets. A report by the International Organisation of Securities Commissions (IOSCO) – a group of organisations that regulate the world’s securities and futures markets highlighted the issue.
French oil group Total wrote a letter to IOSCO, saying: “Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer.”
Remit legislation must be brought in by the end of June, according to EU regulations, but the UK government is yet to put this into action. This is despite the fact the legislation first came to light some 18 months ago.
Ofgem now has just weeks to comply with the measures, which are designed to make it easier to see where market manipulation and insider trading are going on.