The Commission is charged with prohibiting market manipulation in jurisdictional electricity and gas markets. It has enunciated penalty guidelines, policy statements and regulations relating to preventing and penalizing market manipulation. These statements emphasize the importance of having an effective compliance program. As the Commission has described it, “For an organization’s compliance program to be deemed effective under the Penalty Guidelines, an organization must: (1) exercise due diligence to prevent and detect violations; and (2) otherwise promote an organizational culture that encourages a commitment to compliance with the law.”
The white paper provides additional insight into how the Office of Enforcement views compliance issues. It highlights the need for a “culture of compliance”:
For any compliance program to be effective, the organization must have a culture of compliance. Promoting a culture of compliance starts at the top, with a Chief Executive Officer and other executive officers who are committed to compliance and who demonstrate that commitment through action. The organization and the executive officers must be committed to promoting compliance at all levels by devoting the necessary resources to the organization’s compliance activities, implementing and enforcing rules and restrictions that are appropriate for the organization’s activities, ensuring that employees understand their compliance obligations, and continually assessing the effectiveness of the compliance practices.The white paper then provides examples of effective compliance practices, organized into three categories. The first category focuses on designing an effective trading compliance program with a “strong foundation.” According to staff, this involves making “the appropriate decisions relating to: (1) the organizational structure and composition of the compliance function; (2) human resources issues, such as hiring standards, compensation, and discipline; (3) the types of training used to disseminate compliance information; and (4) the technological resources dedicated to the compliance function.”
The second category of practices identified by enforcement staff focuses on establishing, implementing, and enforcing effective practices to deter and detect market manipulation and other misconduct. In addition to implementing some or all of the practices described above in designing the organization’s compliance program, the white paper says organizations should also “(1) establish appropriate rules and restrictions for its traders that will further reduce the risk of misconduct; (2) consistently monitor trading activities for violations of those rules and for any other suspicious activity; and (3) strictly enforce all compliance rules and follow up on all potential issues.”
The third category focuses on assessing the performance of the compliance program on a regular basis. The Penalty Guidelines call for periodic evaluation of the effectiveness of the organization’s compliance program. The white paper provides additional color on staff’s views about assessment, calling for performance audits and taking action on all items identified in an audit.
The white paper finally identifies “ineffective trading compliance practices,” which staff said “generally reflect an organization’s failure to: (1) tailor its compliance program to the specific needs of its trading operation; (2) keep the compliance program up-to-date; (3) make compliance policies accessible to its employees both literally and from the prospective of employee comprehension; (4) place the appropriate emphasis on ensuring compliance; and (5) follow through on monitoring for violations and enforcing compliance-related rules.”
The white paper is designed to supplement the Commission’s Policy Statements, but it explicitly does not require organizations to establish or follow any specific practices to receive compliance credit under the Penalty Guidelines if a violation occurs. Instead, according to the white paper, the existence of these practices in an organization’s compliance program may factor positively into the Commission’s consideration of whether the organization’s compliance program was effective. At the same time, the white paper notes that “adopting the effective practices described herein will not shield an organization from, or provide a defense to, an enforcement action if the Commission concludes, after an evaluation of the facts and circumstances involved, that it committed a violation,” although having an effective compliance program in place at the time of a violation could lead to a reduced penalty.