Call to action for commodity and energy traders

The extreme volatility in energy markets and commodity prices has raised concerns about the effectiveness of current regulations governing commodity derivatives and energy trading markets. A recent consultation by the European Commission (EC) in February 2025 seeks to evaluate the performance of these markets and influence forthcoming regulatory measures.

This consultation is of specific relevance to nonfinancial companies such as utilities or large energy-intensive corporations. These companies rely on the commodity derivatives markets to mitigate the risks from their commercial activities, and in many cases, are exempted from strict regulatory requirements.

The EC’s examination of adjustments to the MiFID II Ancillary Activity Exemption (AAE) introduces a level of uncertainty regarding the regulations and requirements that may apply, with a potentially significant impact on how these entities operate. Should the exemption criteria under the AAE become more stringent, then commodity traders would be required to become MiFID licensed entities and meet enhanced (existing) regulatory requirements. These requirements could for example include minimum capital and liquidity requirements, robust systems and controls for (IT) risk management and additional reporting obligations.

Compliance with existing regulations such as MiFIR/MiFID II (Markets in Financial Instruments Regulation/Directive), IFR/IFD (Investment Firms Regulation/Directive), DORA (Digital Operational Resilience Act), EMIR (European Market Infrastructure Regulation), REMIT (Regulation on Wholesale Energy Market Integrity and Transparency), along with potentially new requirements introduced through the consultation, could introduce a complex regulatory landscape.

Our recommended course of action for companies in the commodity trading sector is threefold:

• Firstly, perform an impact assessment to determine the potential implications of the changes to the AAE, looking at the qualitative business impact, quantitative (capital) implications and implications of becoming a licensed entity in scope of existing regulations.
• Secondly, participate in the consultation process by providing feedback and insights relevant to your business model and activities. This is crucial to influencing the outcome of the consultation and mitigating any unforeseen impact of the proposed changes.
  
• Lastly, prepare yourself for a potential license application and what would be required to meet the regulatory requirements. This ensures readiness to comply with the outcome and enables a continuance of your ongoing activities.

Becoming a regulated financial entity requires a fundamental shift in mindset and approach towards conducting business that generally differs from the current group-wide mindset. If your firm currently falls under the exemption, feel free to reach out to us to discuss how to best navigate these complexities.

Victor van Enter
Senior Manager
Financial Risk Management