Ofgem fines Morgan Stanley & Co. International plc (MSIP) over £5.4m for failure to record and retain electronic trading communications
Press release
Publication date
Company
Industry sector
Generation and Wholesale Market
Ofgem has levied a fine of £5.41m on Morgan Stanley & Co. International plc (MSIP) for not recording and retaining electronic communications between January 2018 and March 2020. These communications were made by wholesale energy traders, on privately-owned phones via WhatsApp, which discussed energy market transactions.
It is the first-ever fine issued in Great Britain under legal requirements to record and retain electronic communications relating to trading wholesale energy products.
The rules, which fall under the REMIT Enforcement Regulations – are designed to protect consumers and ensure market transparency and integrity by providing Ofgem the powers to investigate and sanction against market manipulation and insider trading.
The breach emerged following MSIP’s responses to information requests made using the information collection powers Ofgem has under the REMIT Enforcement Regulations.
Ofgem found that MSIP had policies in place which prohibited the use of WhatsApp for trading communications – but MSIP did not take sufficient reasonable steps to ensure compliance with its own policies and the requirements of the regulations.
MSIP has admitted the breaches between January 2018 and March 2020, and has taken steps to ensure the breaches do not happen again, including enhanced staff training and the strengthening of its internal systems and controls.
MSIP fully co-operated with Ofgem’s investigation and has agreed to settle the case. The fine includes a 30% penalty discount for settling.
Cathryn Scott, Regulatory Director of Enforcement and Emerging Issues at Ofgem, said:
“This fine sends a strong message to market participants that they must comply with all REMIT rules or face enforcement action.
“It is unacceptable that MSIP failed to prevent electronic communications which could not be recorded or retained. It risks a significant compromise of the integrity and transparency of wholesale energy markets.
“We welcome the steps MSIP has taken to ensure the breaches do not happen again.”
BACKGROUND
[1] In exercising its enforcement functions Ofgem (Office of Gas and Electricity Markets) acts on behalf of the UK’s Gas and Electricity Markets Authority. For the sake of simplicity, the Authority is referred to as Ofgem throughout this Press Release.
[2] REMIT is Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency. Following the UK’s departure from the EU, REMIT is retained under national legislation by effect of the European Union (Withdrawal) Act 2018 and amended by the Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019 (SI 2019/534).
[3] The Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 (the Enforcement Regulations) provide Ofgem with the powers to monitor, investigate, enforce, and sanction under REMIT. Regulation 8 of the Enforcement Regulations sets out the legal requirement on market participants to record and retain records.
[4] Regulation 8 requires wholesale energy market participants to take reasonable steps to ensure that any electronic communications about trading wholesale energy products are recorded and retained, and to take reasonable steps to prevent electronic communications taking place which cannot be recorded.
[5] Regulation 11 of the Enforcement Regulations sets out the Authority’s power to require information.
[6] Regulation 26 of the Enforcement Regulations sets out the Authority’s power to impose a penalty.
[7] The Authority considered it appropriate to impose a financial penalty of £7,730,213. However, as MSIP has settled this matter, the Authority has discounted the penalty by 30% in accordance with its REMIT Penalties Statement and reduced the penalty to £5,411,149.