1. Background

On May 7, 2024, Regulation (EU) 2024/1106, better known as “REMIT II“, came into force. This marks the first amendment to REMIT, the Regulation on Wholesale Energy Market Integrity and Transparency, which has been in force since early 2012. The adoption of REMIT II is part of the European package of measures to reform the electricity market design. This European package aims to utilise the experiences gained during the energy crisis to achieve long-term stabilisation of the electricity markets.

The most important changes introduced by REMIT II are as follows:

2. Extension of the scope of application

REMIT II changes the definition of wholesale energy products. Both contracts for the supply of LNG and storage contracts are now included. Additionally, REMIT II includes contracts for the supply of electricity and derivatives related to electricity which may result in a delivery in the Union as a result of single day-ahead and intraday coupling in the electricity sector. For trading orders placed in a third country participating in the Union’s single day-ahead and intraday coupling, the optimal matching of bids may result in a contract for the supply of electricity for delivery within the Union. The legislator clarifies that these contracts shall also be subject to the REMIT regulatory regime.

The existence of a wholesale energy product is the essential prerequisite for the applicability of the market abuse prohibitions and reporting obligations. By changing this definition, the legislator expands the scope of their applicability.

Additional elements are introduced in the provisions on market manipulation and insider trading. The regulation expands the list of actions that potentially fulfil the provisions on market abuse, introducing additional alternatives. REMIT II also introduces catch-all provisions to address previous difficulties in subsuming certain trading practices under the legal provisions. These amendments align REMIT with financial market regulation, which served as a model for the wholesale energy markets’ protection regime in 2011.

 3. Harmonisation of fines

The practice of setting fines varies significantly among Member States, particularly regarding the amounts imposed. In recent years, fines have ranged from low four-digit amounts to tens of millions. With REMIT II, the legislator goes further in intervening in national sanction laws than before. REMIT I stipulated that sanctions must be effective, dissuasive, and proportionate, considering the nature, duration and seriousness of the infringement, the damage to consumers, and the potential gains resulting from trading. REMIT II substantiates this requirement: the regulation raises the upper limit of fines by setting maximum amounts for fines that a Member State must at least provide for the fining of a violation. For example, for market manipulation, the national regulatory authority must be able to impose a fine of at least 15% of the annual total turnover in the preceding financial year against a legal entity. In future, fines of at least up to 5 million euros can be imposed on a natural person. This requirement contains a clear mandate to the Member States to increase the maximum amounts provided for under their national laws.

4. Strengthening cooperation between authorities

According to the REMIT concept, a broad information base is essential for enforcing the prohibition of abuse. To this end, REMIT II strengthens cooperation between national authorities. In particular, it promotes the sharing of information, which is intended to close information gaps at individual authorities. However, REMIT II does not only focus on energy regulators, but also takes supervisory authorities from other markets into consideration. For example, the exchange of information between financial and energy regulators will be intensified.

5. New powers for ACER

In addition to its market surveillance function, ACER can also investigate suspected cases with cross-border relevance on the basis of REMIT II. The reason behind this change was the realisation that market abuse is increasingly taking place across borders. In the past, difficulties have arisen in prosecution when determining responsibilities. ACER’s involvement creates new capacities for investigating suspected cases. Under REMIT II, for example, ACER is authorised to carry out on-site inspections, request information, and impose penalty payments to enforce the investigative measures. However, the right to sanction violations remains exclusively with national regulatory authorities.

6. Expansion of reporting obligations

REMIT II expands existing reporting obligations and introduces new ones. For example, the reporting obligation for persons professionally arranging transactions is expanded. In future, they will no longer only have to report suspicious transactions, but also suspicious trading orders. With the expansion of the definition of wholesale energy products, existing reporting obligations are correspondingly expanded. REMIT II also implements additional reporting obligations, for example, for operators of algorithmic trading. These changes must be taken into account when (re-)organising internal reporting processes.

7. Algorithmic trading

REMIT I, which came into force in 2012, did not yet contain any regulations on algorithmic trading. This type of trading has increased significantly in recent years, partially surpassing manual trading. Due to its relevance, ACER clarified in its application guideline that trading by means of algorithms can also fall under abuse prohibitions.

REMIT II contains additional requirements for the resilience of algorithms. Market participants must design their algorithms to avoid causing disruptions in the market. REMIT II also stipulates monitoring and documentation obligations. Market participants engaging in algorithmic trading are also required to notify the national regulatory authority and ACER. The national regulatory authority can request specific evidence from market participants. Therefore, the newly introduced retention periods must be particularly observed.

8. Need for action

Market participants must immediately review and, if necessary, adjust their trading and reporting processes and internal compliance regulations to the new legal framework. The amended regulations regularly require significant adjustments to established practice, which demand time and resources. In light of the stricter sanctions, these adjustments must be carried out all the more carefully.

unyer Working Group Energy / Infrastructure
Lilith Boos
Dr Holger Stappert
Manuel Tomas