Focus: The FSA Identifies Emissions Trading Risks
Published: 01 April 2008
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5 pages
Introduction
On March 31, 2008 the Financial Services Authority’s Commodities Group published a report assessing the risks associated with trading in the emissions market. The FSA identifies unique risks in emissions trading due to the political basis of the market and the lack of an underlying trade-able physical commodity. What are the specific risks that emissions market participants need to be aware of and what does the FSA risk assessment mean for the market?
How You Benefit
This short report provides a concise digest and analysis of the report on emissons trading risk assessment by the Commodities Group of the Financial Services Authority (FSA). This provides an acid test for you to understand what action you may need to take relative to your own risk management procedures. We believe this is a warning shot from the FSA.
TABLE OF CONTENTS
Regulated By Multiple Authorities
Comparable To Other Commodities Markets
EU Emissions Trading Scheme Functioning Well
Moving To The Centre Of Energy Markets
Emissions Trading Venues Proliferate
Investment Levels Low Despite Rapid Growth
Risk Management Tools Are Limited
THE EMISSIONS MARKET: WHAT ARE THE RISKS?
Politically-Contrived Allocations Of Underlying Allowances
A Lack Of Common Standards For Financial Instruments
Insufficient Connections Between Emissions Markets
Inappropriate Environmental Claims
Unsatisfactory Investment Advice
Misleading Use Of FSA Authorisation
Immature Risk Management Training And Controls
Unavailable And Incomplete Market Information
WHAT IT MEANS FOR THE MARKET
Audit Risk Controls For Emissions Derivatives Trading
Focus On Risk Trading For New Hires
Expect More Risk In the Future, Not Less