ERMUSR MISC ISSUES 11-09-2004 - Laserfiche WebLink

Home Browse Search

WEDNESDAY, OCTOBER 13, 2004 Cl Britain Finds Energy Traders Cutting Corners Top Financial Watchdog Warns About Regulatory Compliance; • A Question of Market Integrity • By CHIP CUMMINS London BRITAIN'S TOP financial watchdog warned that a number of companies aren't comply- ing with regulatory requirements in Lon- don's thriving energy-trading business, raising questions about the integrity of markets as energy prices—particularly for crude oil—have been rising. In a public letter to chief executives at four dozen energy-trading firms,the Financial Services Author- ity yesterday said standards among traders had generally improved in recent years,hut"some mar- ket participants still fall below our requirements and need to improve considerably"The FSA specifi- cally cited shortcomings in the areas of mitigating trading risk and general regulatory compliance, in- cluding regarding money-laundering rules and knowledge among traders of market-conduct codes. Last week, the FSA said it hadn't found any evidence of market abuse in an unrelated probe of unusually high natural-gas prices in Britain in recent months. An FSA spokesman said yesterday that the• latest review wasn't tied to this year's surge in oil prices, and didn't uncover any evidence of rigged trading or other "egregious" breaches of regula- tions.But the spokesman added, "We're quite con- , cerned about finding the failings we did." The agency also said that several firms declined to cooperate with the FSA's review of market prac- tices.It didn't name the companies it deemed out of compliance or uncooperative or say how many firms failed to measure up. The FSA sent the letter to firms it considers active in oil or other energy markets, including natural gas and electricity. They include trading affiliates for most of the ma- jor publicly traded oil companies, utility compa- nies and commodity brokers operating in London. The findings raise fresh concerns about compli- ance standards and behavior at energy-trading firms amid the biggest oil-price rally in two de- cades. Energy-linked financial products such as fu- tures and options are increasingly traded at places like the New York Mercantile Exchange and Lon- 'don's International Petroleum Exchange. Trading on these exchanges is generally monitored closely _ by exchange staff. Last year,Nymex fined BP PLC a record$2.5 million to settle allegations of improper oil-market trading, without divulging details of the alleged infraction. BP agreed to the fine without admitting or denying the accusations, But the bulk of energy trading still occurs in so-called over-the-counter markets, where parties hammer out contracts to buy and sell physical energy or trade a wide variety of energy-based derivatives contracts. Confidence in over-the- • Please Turn to Page C4, Column 5