The energy crisis, which reached its peak in the winter of 2022-2023, has put the spotlight on the need for integrity and transparency in wholesale energy markets.

In this context, the so-called REMIT Regulation of 25 October 2011, which prohibits, inter alia, market manipulation and insider dealing in the wholesale electricity and gas markets, has been identified as a key piece of legislation.

Inspired by the regulations prohibiting such market abuse on financial markets, it initially gave rise to only a limited number of enforcement actions before gradually gaining momentum in recent years.

This piece of legislation is currently being amended to draw lessons from the crisis and strengthen the convergence of its provisions with those of the so-called MAR Regulation of 16 April 2014, which applies in particular to financial instruments with energy products as underlying assets.

This convergence further extends the recent strengthening of coordination between energy regulators and financial regulators at EU level, which aims to ensure a coherent continuum of supervision of electricity or gas trading, whether on wholesale or financial markets.

REMIT serving the integrity and transparency of wholesale electricity and gas markets

Inspired by the principles governing the regulation of financial markets, Regulation (EU) No 1227/2011 of 25 October 2011 on the integrity and transparency of the wholesale energy market ("REMIT") established a harmonized framework at EU level adapted to the specificities of the electricity and gas sectors, the primary objective of which is to "to foster open and fair competition in wholesale energy markets for the benefit of final consumers of energy"^[1] .

This includes "spot" markets, where energy products are traded on a daily or intraday basis, as well as forward markets, where contracts are concluded for the supply of electricity or gas in the coming days, weeks, months, quarters or years, at a price negotiated on the date the contract is concluded.

In order to ensure the proper functioning of these wholesale markets, and more specifically their integrity and transparency, REMIT provides for an arsenal of measures based on three main objectives

• the publication as soon as possible by market participants of inside information, defined in substance as any non-public information, which relates, directly or indirectly, to one or more wholesale energy products and which, if it were made public, would be likely to significantly affect the prices of those wholesale energy products;
• the prohibition of market abuse, i.e. the prohibition of insider trading and market manipulation;
• the detection and reporting of suspicious transactions by persons arranging transactions in wholesale energy products on a professional basis, i.e. transactions that may constitute market abuse.

In doing so, REMIT forms a true continuum with Regulation No 596/2014 of 16 April 2014 on market abuse ("MAR") since the latter, based on the same principles, also applies to energy products when they are qualified as financial instruments. The borderline may indeed be thin, if one considers for example that a forward electricity purchase contract will constitute a financial instrument if cash-settled, and a wholesale energy product if physically-settled.

To ensure its own effectiveness, REMIT provides for national regulators - the Commission de Régulation de l'Énergie in France ("CRE") - to be vested with market surveillance, investigation and enforcement powers.

At the European level, the Agency for the Cooperation of Energy Regulators ("ACER") plays a central role, both in terms of coordinating monitoring activities and interpreting the rules resulting from REMIT^[2].

A gradual build-up: increasing sanctions and strengthening European cooperation in response to the energy crisis

Although it has been in force since 28 December 2011 and has never been amended since then, it is only very gradually that REMIT has given rise to enforcement actions, with a clear acceleration in recent years.

In France, the first decision issued on this basis by the Comité de Règlement des Différends et des Sanctions (“CoRDiS”), a CRE body with sanctioning powers, was only handed down in 2018^[3]. In contrast, three of the five decisions issued by the CoRDiS to date have been handed down since spring 2022.

The same acceleration can be observed at the European Union level, where more than thirty decisions were handed down during 2022 by the various local regulators.

Although these decisions mainly concern facts that predate the energy crisis, the increase in repression is coupled with a very clear strengthening of surveillance activities on all markets by national regulators, in order to deal with the tension on the markets.

These increased surveillance actions have also highlighted the key role played by ACER. As the recipient of alerts on suspicious transactions and, more broadly, of numerous market data, ACER has a significant capacity to drive and coordinate the investigations conducted by local regulators.

This is illustrated, for example, by the cross-border investigation group set up at the end of 2022 between the German, Austrian and Dutch regulators under the aegis of ACER to detect and collect evidence of possible gas price manipulation^[4].

More recently, ACER and the European Securities and Markets Authority (“ESMA”), the European financial markets supervisory authority, have announced that will increase their cooperation and that they entered into a new memorandum of understanding in March 2023 aiming in particular at reinforcing the exchange of information between authorities and adopting an even more harmonized approach in the fight against market abuse^[5].

Future legislative reform: towards an enhanced REMIT and a possible strengthening of ACER's powers

The recent intensification of cooperation between energy and financial market regulators is now coupled with a legislative initiative aimed at greater textual convergence and an enhanced REMIT along the lines of MAR.

On 14 March 2023, the European Commission tabled a draft proposal to amend REMIT in order to draw lessons from the energy crisis^[6]. The proposal intends to "further increase transparency and monitoring capacities as well as to ensure more effective investigation and enforcement of potential cross-border market abuse cases addressing the shortcomings identified in the current framework".

Thus, after noting the "the increasingly close interrelation between financial markets and energy wholesale markets" the Commission proposes, for example, that REMIT Regulation be better aligned with financial market legislation, in particular as regards the definitions of market manipulation and inside information.

But beyond a textual clean-up, aimed at harmonizing the key concepts in market abuse law, the draft proposal would also strengthen the ACER's powers.

In this respect, the Commission notes in its draft proposal that, based on its solid experience in the field of monitoring and collecting relevant data on wholesale energy markets, ACER should then be empowered to conduct investigations itself in a cross-border context.

This new prerogative, if confirmed in the course of future parliamentary debates, would then lead to an upheaval in the system of enforcement and surveillance of market abuse in wholesale energy markets, exceeding the powers currently conferred on ESMA, which has only a coordination power.

^[1] REMIT, Recital No.2.

^[2] This is evidenced by the extensive guidelines issued by ACER to clarify and interpret the main obligations under REMIT.

^[3] CoRDiS, 5 October 2018, No. 02-40-16, Vitol.

^[4] ACER and three regulatory authorities reinforce coordination on energy market abuse, 3 November 2022.

^[5] ACER and ESMA update Memorandum of Understanding to strengthen cooperation, 6 March 2023.

^[6] Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 1227/2011 and (EU) 2019/942 to improve the Union’s protection against market manipulation in the wholesale energy market.