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ABSTRACT
The UK Financial Services and Markets Act (FSMA) 2000 has introduced a new 'light-- handed' regulatory regime ftr energy market participants. The following paper shows how it changes the playing field fi)r energy traders, producers and distributors.
INTRODUCTION
During the second half of 2001, the markets for derivatives and other investments related to electricity, gas, oil, coal and other energy-- related products became subject to a new `light touch' financial services regulatory regime known as the energy market participants (EMP) regime. This new regulatory approach is modelled on the old regime for oil market participants (OMPs) (which continues to exist separately) and is principally a product of changes in regulation brought about by the new Financial Services and Markets Act 2000 (FSMA), which replaced the Financial Services Act 1986 (FSAct) on 30th November, 2001 (N2).
At N2, the regulatory functions of the self-regulating organisations, such as the SFA and IMRO, were folded into the Financial Services Authority (FSA), which became the new single regulator for financial services in the UK. Under the new regime all persons who carry on `regulated activities'2 are required to be 'authorised' by the FSA (or in certain limited situations ,exempted').
The EMP regime was created partly as a response to the abolition of the old `permitted persons' exclusion on which many players in the energy industry relied in order to take themselves outside the scope of financial services regulation.
The principal benefits of the EMP regime are:
- participants in the EMP regime are able to avoid application of most of the `conduct of business' requirements in the FSA's new Conduct of Business Sourcebook3
- some EMPs benefit from a disapplication of the FSA's prudential (ie financial resources) rules
- where an EMP's main business activities are not regulated activities, employees and officers who perform `significant influence functions' other than the `required function' do not have to be registered with the FSA as approved persons;
- some other administrative and reporting obligations contained in the FSA's new Handbook of Rules and Guidance are also disapplied (eg the obligation to report transactions to the FSA).
The creation of the new regime presents an ideal opportunity for companies involved, or wishing to become involved, in the energy-related investment markets...