Countdown has started for Remit reporting regime

The countdown is on for Remit reporting: time to get your data in order

With Remit rearing its head, Emir fresh in the memory and Mifid II on the horizon, it’s becoming clear thatregulation is now an ever-present in the space. Harry Nota, Head of Energy, EMEA, OpenLink, looks at where theindustry is today and argues that it’s time to get your data in order - forboth the short and long term.

April 7 is something of a milestone for energy traders: itmarks precisely six months to the day until Remit mandates reporting of allOrganised Marketplace (OMP) trades, and just 12 until over-the-counter (OTC)trades are required too.

Theindustry is not as ready for this as some might think, mistakenly assuming thatthe burden will fall elsewhere. Moreover, there’s a sense of deja vu aroundEmir reporting requirements, and Mifid II looms close. So the challenge is notjust to get ready for when Remit hits in six months, but to do so in a way thatdoesn’t just paper over the cracks until the next regulatory requirement comesalong. The only way to do that is to get a grip on the data.

The clock is ticking

From October 7 all energy companies in the EU will need to report to the European Agency for the Cooperation of EnergyRegulators (ACER)all standard power and gas deals and orders to trade. By ‘standard’ it meansany trade or order on an OMP. 

Thoughthe deadline is a mere six months away, many energy companies seem to besurprisingly relaxed about the deadline. Remit includes a key provision that,if requested, brokers and exchanges (the OMPs) must offer to report trades, orders to trade and bids and offers onthe energy company’s behalf. This provision has led many to believe that it’snot their problem. They’re wrong.

REMIT isn’t my remit…

Theobligation for OMPs to take on reporting is useful - especially for smallercompanies who haven’t the resources to even dream of taking it on themselves -however it’s not outsourcing the regulatory obligation.

Inthe real world, an energy company might trade across several exchange platformsor brokers, meaning potentially dozens of different parties reporting data backto ACER’s central repository. Crucially, there are no universal standards forcompiling and reporting the data, meaning these different venues may besupplying very different data sets that aren’t easily comparable. This adds upto a massive headache for an energy company that is trying to keep tabs on whatdata ACER holds on it - as it must do.

Ifthat sounds daunting but doable, remember then that the picture gets even morecomplicated another six months from then. On April 7 2016, in addition toreporting OMP trades, energy companies will have to report the rest of their trades- including complex power purchase agreements (PPAs) and all over the counter (OTC)trades.

Thismakes the task a lot more complicated. In the case of OTC trades, not only willthere be no OMP to take up some of the reporting burden, but the structure ofthe trades becomes more complex and difficult to standardise. Two energycompanies trading bilaterally may report the same trades to ACER in verydifferent ways, making it even harder to reconcile.

It’sunwise then, to sit back and relax in the belief that your exchange and brokerpartners will take care of it - even if that was true for the October deadline,it isn’t for the April deadline. What’s needed is a coherent and comprehensiveapproach to energy trading data that is ready for Remit implementation at bothstages. The market knows this, which is why there will be a lot of thirdparties out there in the next few months ready to help energy traders ensureRemit compliance. The temptation is to sign-up, sit back and relax. Againthough, that would be a mistake.

 History repeats itself

It’seasy to have a short memory when it comes to regulation, but even a cursoryglance at recent and upcoming events is enough to show the error of a shortregulatory memory span.

Itwas not all that long ago that the big issue for energy traders was Emir reporting, and indeed things are far from settled on that front with theresults of the recent Esma consultation on Trade Reporting soon to result inupdated Regulatory Technical Standards. It was tough, but the industry gotthere and could relax, until now.

NowRemit is causing another panic. And when the dust has settled there will be thesmall matter of Mifid II to deal with. There have already been (expensive)examples of firms, which have invested in best-in-class Emir compliance and nowneed to cough up again for Remit. No doubt history will repeat itself in atleast some cases where those that invest heavily in Remit find themselveshaving to do so again for Mifid or whatever (inevitably) comes next. 

Tobreak the cycle and prepare for Remit in a way that also takes the sting out offuture regulations, companies need to get their data affairs in order. This isa big ask, especially for energy trading outfits where data is spread across asprawling ecosystem of trading platforms, spreadsheets and data warehouses.However, it’s the only way to manage data in such a way that, whateverreporting requirements are imposed now or in the future, energy traders cancomply in a relatively pain-free way. 

So,what does the industry need to do right now to get ready for Remit? It needs torealise that the OMPs will not solve their compliance problems for them, and itneeds to invest in doing so themselves - either with in house abilities or viaa third party. That’s what needs to happen right now. However, if energycompanies want to do so in such a way that they don’t read the same warningswhen the next regulation rolls up, they need to go further and get a firm graspon the common denominator underpinning all reporting requirements - the data.