Ofgem fines Morgan Stanley for failure to record and retain electronic trading communications

LONDON, UK: Ofgem has levied a fine of £5.41 million 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.”

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