Energy Commodity Trading Compliance
The energy trade is one of the biggest components of the commodity trading marketplace. In order to keep the market operating transparently and efficiently, the industry is heavily regulated with significant fines and penalties for noncompliance.
Who Regulates the Energy Commodity Trade?
Energy commodity traders answer to different regulatory bodies depending on the country in which they are located. In the United States, the main responsibility lies with the Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC).
The FERC and CFTC oversee issues related to violations of rules that impact market behavior, such as inaccurate reporting and fraudulent activity. The FERC strives to ensure that energy commodity traders comply with the Federal Power Act and the Natural Gas Act, and the CFTC is responsible for compliance with the Commodity Exchange Act.
What are the Consequences of Noncompliance?
Energy commodity traders that do not comply with the relevant regulations – which include requirements to capture and archive business-related communications – are subject to civil penalties as well as criminal penalties in some cases. The Division of Enforcement in the CFTC has become increasingly active in the last few years, and while FERC conducted fewer investigations than usual during the Covid-19 pandemic, they have since ramped up their activity as well.
The most common alleged violation that the commissions go after tends to be market manipulation, but companies should also beware of violations of other rules.
How Can Energy Commodity Traders Comply with Regulations?
Compliance expectations of both the FERC and the CFTC include the following:
- Commodity trading firms must have standardized policies and procedures in place that are designed to detect and prevent violations of regulations.
- Specific personnel should be assigned to oversee compliance.
- Employees should receive ongoing training related to compliance policies and procedures.
- There needs to be a proper enforcement method in place.
- Any potential violations that are detected must be investigated and mitigated.
Commodity traders should keep in mind that much of what can be deemed illegal comes down to a matter of intent. If the CFTC or FERC determines that a particular action was done with intent to commit a crime, then the trader (and the firm) can be held liable. For this reason, it is crucial that companies are diligent about monitoring and tracking all employee communications. This way, they can pick up on potentially harmful activity before it’s too late or, in a case of wrongful accusation, they can prove that there was no harmful intent.
Message Capturing and Archiving for Energy Commodity Trading Compliance
A major part of complying with regulations for energy commodity traders involves capturing and archiving employee communications, whether they take place over email, voice, or internal or external messaging apps. As a leading provider of message capturing and archiving services, LeapXpert can help energy traders ensure that they do not let any communications fall through the cracks and are in full compliance with all regulations. Book a demo to see LeapXpert in action.