French Energy Regulator Fines Firm for Failing to Provide Information

This week the Dispute Settlement and Sanctions Committee (CoRDiS) of CRE, the French energy regulator, announced (click here) an enforcement action against JP Morgan SE (JPMSE), a German-based arm of the American investment bank providing market access and clearing services to market participants, for failing to comply with its obligation to provide the information necessary for the CRE to carry out its duties as set out in Article L. 134-18 of the French Energy Code.

The investigation was opened by CRE in October 2023 after JPMSE failed to provide the full information requested relating to its customers and their activities. For context, CRE made the request for information (RFI) to 44 market players in an attempt to understand the drivers of the unprecedented rise in French wholesale electricity market prices during 2022. In particular they were interested in contracts for delivery in France for the winter of 2022-2023 and for the year 2023. The 44 market players were made up of different business profiles and were from various countries. Out of the 44 market players, JPMSE was the only party to not fully satisfy CRE’s information request despite extensive back-and-forth communication between the two parties where JPMSE disputed the legal basis of the request.

CoRDiS’s 16-page decision may be found here (the decision is in French).

The salient facts of the case are summarised below:

• In an unanswered letter dated 2 August 2022, CRE made an initial RFI based on article L. 134-18 of the French Energy Code to JPMSE, an entity headquartered in Germany;
• The letter requested information concerning the trading activity of JPMSE including its transactions and positions in wholesale electricity products during the winter of 2022- 2023 and the year 2023;
• JPMSE received reminders by e-mail from CRE on 23 September 2022 and 7 October 2022 after receiving no response to its original request;
• In an email dated 17 October 2022 and in a letter dated 8 November 2022, JPMSE refused to provide the requested information on the grounds that CRE would not have the power to issue binding requests to market players registered in Germany under Article 9 of the REMIT rules in force at the time (this has changed under REMIT II however);
• As such, they indicated that CRE should address the RFI through the national regulatory authority (NRA) of the Member State concerned, in this case the Bundesnetzagentur (BNetzA) in Germany;
• CRE sent a renewed RFI for the same information to JPMSE via letter dated 16 February 2023 citing article L. 134-18 of the French Energy Code as the basis for its request;
• In this letter, CRE noted that under the Energy Code, it indeed has the power to send binding requests for information directly to market players located or registered in other member states when a party has engaged in the trading of a wholesale energy product in the French wholesale market;
• CRE also clarified that despite the fact that a market player registers with only one NRA, this in no way implies that this authority has exclusive supervisory powers over that entity;
• JPMSE replied via letter on 6 March 2023 reaffirming its view that NRAs do not have the power to issue binding requests directly to market players located in other member states;
• The letter also indicated that JPMSE had gathered the information requested by CRE and was ready and willing to provide it on receipt of a formal request from BNetzA;
• In the interim, the 43 other parties involved responded fully to the RFI which enabled CRE to perform its analysis of the market and publish its results sans the information from JPMSE;
• In a decision dated 12 October 2023, the Chairman of the CRE instructed the opening of an investigation to establish whether JPMSE had failed to comply with its obligation to provide documents and information as set out in article L. 134-29 of the Energy Code by its refusals to provide the information requested – JPMSE was informed of this decision.

JPMSE’s Defence:

• JPMSE responded to the official charges on 8 January 2024 – the main thrust of its arguments are outlined below;
  • The investigation is built on factual inaccuracies;
  • JPMSE somewhat semantically argues that it had not refused to provide the information requested, just that it was willing to provide it only to BNetzA;
    For the period involved in CRE’s request, JPMSE did not trade on its own account in French electricity futures but rather only provided execution and clearing services for customers - including on EEX (which is based in Germany).

• The investigation was based on inaccurate legal grounds as a market player's failure to meet its obligation to provide information within the meaning of Article L. 134-29 of the Energy Code actually refers to a failure to comply with the obligation set out in Article L. 135-1 of the Code which gives CRE a "right of access to the economic, financial and social information necessary for its supervisory mission" solely in the context of investigations (which JPMSE evidently did not believe was the purpose behind this RFI);
• JPMSE further argued that Article L. 134-18 of the Energy Code does not grant CRE any "right of access" but simply describes a general possibility for CRE to request relevant information from various operators without specifying whether this possibility should result in binding requests for information;
• In JPMSE’s view, it was being accused of having failed to comply with an obligation that was never mentioned in the RFI and that the announcement of the investigation “affected its assessment of the obligations referred to in the requests for information” – this is assumed to relate to a change in their interpretation of their obligations under the Energy Code now that a formal investigation had been launched (see below);
• JPMSE are also of the view that it cannot be sanctioned for failure to comply with an obligation that did not apply to it as CRE wrongly invoked the right of access to information provided for in article L. 135-1 of the Energy Code – JPMSE believes that this right of access is part of the CRE's investigative powers only and does not apply to RFIs sent as part of its market surveillance mission;
• JPMSE contend that CRE does not have the power to send binding requests for information directly to foreign market players, a principle made clear from the REMIT provisions on supervisory activities and powers of investigation in force at the time i.e. where the NRAs' powers are to be understood on a national scale combined with the NRAs' duty to cooperate on cross-border issues with other NRAs under Article 16 of the REMIT (Article 13(1) of REMIT II has helped to clarify this position);
• JPMSE also argues that it did not operate in the French wholesale electricity market during the period in question, contending that the notion of a national wholesale energy market must be understood as referring to infrastructures (i.e. market places organized within the jurisdiction of the Member State concerned – Germany in this case) and not to the place of final physical delivery (i.e. France in this case);
• As a result, JPMSE contends that while CRE may request information directly from foreign market operators, such requests are not legally compelled in the absence of their transmission via the competent NRA in question as part of the “international cooperation” provided for by REMIT;
• In totality, JPMSE believed that CRE could not take any action against it for failing to respond to such non-binding RFIs, unless it was committing abuse and as such CRE must address its requests for information via BNetzA.

CRE’s response and JPMSE’s follow-up response:

• CRE rejected these arguments and informed JPMSE that should it fail to comply fully with the formal notice, sanctions under article L. 134-27 of the Energy Code would be imposed without further notice;
• On 15 April 2024 JPMSE replied by letter restating its position that CRE did not have the power to issue binding requests directly to market participants located in other Member States;
• JPMSE also notified CRE of its decision to send only part of the information requested which it believed would not result in a breach of its confidentiality obligations as a bank;
• They appear to have provided information about the nature, dates, prices and durations of their transactions for the futures products requested but failed to answer other questions on the basis that they exclusively provided execution and clearing services for the customers concerned;
• As such, JPMSE did not provide any information on the identity of the parties involved in the relevant transactions;
• Somewhat exasperated, CRE responded maintaining its position as follows:

• REMIT in no way limits an NRA’s powers to players registered with them or domiciled on their national territories;
• Regardless, in this case the RFI was not made by CRE under REMIT, but as part of its supervisory duties under article L. 134-18 of the Energy Code which gives it the power to gather any information necessary for the performance of its duties;
• Given the above, players operating directly or indirectly on the French market are obliged to communicate this information, and failures to comply will garner penalties under article L. 134-29 of the French Energy Code.

• Despite this, JPMSE maintained that only a binding request could release it from its obligation of confidentiality towards its customers reiterating that it provides direct market access (DMA) services only for these customers and hence had no access to information about their hedging strategies and trading assumption.

Penalty:

• A fine of EUR 500,000;
• Publication of the decision on the CRE website and in the Official Journal of the French Republic without the possibility of anonymising the identity of JPMSE;
• Forcing the publication of the decision by JPMSE in its next financial press release, specifying that a banner with a mandated message be placed at the top of the first page of the relevant press release in a “conspicuous manner” (and goes as far as specifying a relative font size and colour!) in French, English and German;

• It seems evident that JPMSE’s extended haggling over the case was a cause of some annoyance for CRE – the final fine of EUR 500,000 was several times higher than the EUR 100,000 and EUR 150,000 (see page seven as numbered) proposed by the Appointed Member to the panel who compiled the case documentation for the CoRDiS panel.

CRE published this response in support of the CoRDiS decision. The decision provides a useful test case in determining jurisdictional boundaries and the interplay between EU rules like REMIT and local rules such as the French Energy Code. It seems that JPMSE’s calculus appeared to place a greater weight on maintaining its clients’ confidentiality over responding to a national regulator’s request for information directly involving its local market. For DMA providers, the case places some clarity over what activities constitute involvement in a market (in this case DMA/execution and clearing services).