The impacts of recent regulation and compliance measures to the Back Office cannot be understated.
To delve further we sat down with Head of Back Office at one of the largest utlities in Spain, Endesa: Antonio Sevilla Cervantes.
Please see below for the interview in full and join the conversation @Commodities_Ppl
The energy trading sector has been undergoing deep changes in the past few years, with the rise of renewable energy offers, and the heavy regulatory requirements. In your opinion, what has been the main impact of these changes on the markets? On your day to day work?
We are an Energy Utility with important assets of thermal generation, coal and natural gas. In our case the biggest impact has been the rise of renewable energy because we are producing less with our thermal generation.
The heavy regulation requirements are affecting us but the impact is less direct. In our opinion the regulation is reducing the liquidity of the derivative markets because some banks and traders have closed their commodity trading desks. This lack of liquidity reduces our opportunities to hedge our portfolio.
"In our opinion the regulation is reducing the liquidity of the derivative markets because some banks and traders have closed their commodity trading desks."
Apart from the regulations, what do you see as the main challenges for your team now? In the next 6 months? In the coming year(s)?
In our case we are working a lot in the automation of back office processes and also improving the management of information in the business. As I commented previously, we have less revenue, some markets are less liquid, and consequently we need to find new ways to do business.
We need to study the markets and analyse more info in order to maintain our level of profitability. If we consider automation of traditional back office processes, we are downsizing the number of people we need.
On the other hand, considering compliance requirements, we are increasing the resources needed to comply with the regulation even though we are automating it as much as possible.
Can you tell us a bit more about the session (panel/presentation/case study) you will speak on?
“Trade surveillance in today’s energy markets”.
We are especially concerned because in our opinion there is not a clear regulation. It is quite a sensitive point, because trading surveillance rules assume the company is going to declare market abuse behaviours and this is a strong accusation.
The problem is that there are no clear rules to define this behaviour. We are responsible to declare if we are complying with rules that are not clear. This isn’t easy for companies to manage. The clarity needs to come from the different regulatory authorities.
"The problem is that there are no clear rules to define [abuse]. We are responsible to declare if we are complying with rules that are not clear."
The back office has been under a lot of constraints, including budget constraints. How do you manage to deal with cost-cutting?
We are not evolved to reduce cost, eg – in some cases we are able to lay off jobs (low level office specification) but on the other hand, we need to recruit higher level positions to go along with compliance regulations. So ultimately, we aren’t reducing cost
What are the key processes you are looking to improve?
At this moment, everything related with compliance, because this affects many different processes. Eg – we need to record, check and manage more information in our systems. So compliance is the biggest driver of improvements.
We go about improving It by improving our currently systems by working with our suppliers in the interim.
How would you qualify your relationship with the IT teams? Are there any ongoing projects to enhance communications across these departments?
We have a very good relationship. No specific projects. Our communication is quite good. We are quite involved in our everyday work.
We communicate in different ways – we have committees in different systems and all users are invited to this committee. Here they can express their issues with the system.
We have a company tool that we use to ask for improvements, or define an incident or request urgent tasks. The ICT dept. sits close to us, and they frequently visit our department as needed.