In recent years, high profile incidences of market abuse in the wholesale banking and finance sector have become almost common place. These, in turn, have attracted significant attention from governments, regulators and the general public, prompting firms to enforce robust compliance frameworks. In contrast, to date the wholesale energy markets have not received the same degree of regulatory oversight, although that is now changing. The last two years have seen the phased introduction of REMIT and EMIR, in addition to extensions of the existing MAD and MiFID frameworks, all of which result in energy companies facing far greater regulatory compliance obligations. Furthermore, serious examples of abuse in the energy markets, such as the EU ETS VAT carousel fraud and more recently, the allegations of price manipulation in the UK wholesale gas market are only set to increase external scrutiny of the activities of the energy players.
With this in mind, how can energy companies themselves keep a closer view on their own activities, before they ever come to the attention of the regulator?
To address this question, firms can consider implementing a Transaction Surveillance capability within their organisation. Transaction surveillance is an operational function, typically within the Compliance area, whereby monitoring is undertaken to identify unusual patterns in trading or market behaviour which may be indicative of market abuse. The function comprises dedicated resources with the skills, tools, technical solutions and remit to analyse proprietary trading and market data in the detection and prevention of abuse. The team's activities are underpinned by a business process framework which covers routine monitoring, investigation and escalation of potential incidents.
Baringa Partners has published a White Paper which explores the use of transaction surveillance processes and systems in the energy trading sector. It considers the types of tools and capabilities which can be used for monitoring, and some of the unique challenges faced when implementing these solutions in the energy markets. Please click here to view.