The ESMA (European Securities and Markets Authority) recently released a briefing insisting on the importance for companies and their clients to have a Legal Entity Identifier (LEI).
This constraint is to take seriously as from the 3rd of January 2018, “companies subject to MiFID II transaction reporting obligations will not be able to execute a trade on behalf of a client who is eligible for a Legal Entity Identifier (LEI) and does not have one.” (Source: FCA Legal Entity Identifier update).
“Companies subject to MiFID II transaction reporting obligations will not be able to execute a trade on behalf of a client who is eligible for a Legal Entity Identifier (LEI) and does not have one.”
LEI: What is that again?
Thank you for asking. According to the FCA, an LEI is a “unique identifier for persons that are legal entities or structures including companies, charities and trusts.” This identifier is a 20-digit, alpha-numeric code that once allocated is included in a global database, allowing “clear and unique identification of legal entities participating in financial transactions” (Source: ESMA Briefing 9/10/2017).
The importance of the LEI code
The common database created to stock and manage LEI information enables regulators to clearly identify potential risk in financial transactions, and creates the necessary transparency to conduct market surveillance.
For businesses as well, LEIs also offers a few benefits. According to ESMA, upsides include:
According to the FCA and starting on the 3rd of January 2018, if a business is subject to MiFID II or is a UK branch of a third country firm, it will need to ensure that “its clients eligible for an LEI have one before executing a transaction in a financial instrument subject to the MiFID II transaction reporting obligations on their behalf”.
“If a business is subject to MiFID II or is a UK branch of a third country firm, it will need to ensure that its clients eligible for an LEI have one before executing a transaction in a financial instrument subject to the MiFID II transaction reporting obligations on their behalf”
What needs to be done? A step-by-step guide
In order to obtain an LEI, a company should follow those 3 steps:
Contact an LEI issuing Organisation: an interested legal entity should contact the LEI issuer (or Local Operating Unit) of its choice, from the country of its choice, based on its needs.
Data registration: The LEI data is registered and regularly verified according to protocols and procedures established by the LEI Regulatory Oversight Committee (LEI ROC).
Request submission: After having chosen the LEI issuer, the applying entity should submit a request to that issuer, provide the legal entity reference data, including address, name, legal form and ultimate parent owner of the entity (greater than 50% ownership), verify its submission and pay for the LEI code.
After those steps, an LEI will be issued within 24 to 48 hours depending on the LEI issuer.
(Source: ESMA Briefing 9/10/2017).
In order to maintain good commercial relationships with its clients and partners, any legal entities within the European Union should take this LEI topic seriously.
The 8th ETRC 2018 Summit provides the best platform for legal and compliance officers to communicate directly with regulators and get a clear update on how to comply efficiently to new regulations like MiFID II.
ESMA Briefing – 9th October 2017
FCA: MiFID II – Legal Entity Identifier (LEI) update
Related sessions from ETRC 2018:
Q&A with the Financial Regulators: Exclusive Q&A session between the Financial Regulators and audience to address issues and ask questions on around:
MiFID II: Position limit and position reporting challenges
Hedging policy: Definition and conditions
Enforcement of the regulations: Anti-abuse measures and investigation
Review of EMIR: Timeframe
Enhancing information-sharing under all regulations
What are the requirements under MAR and REMIT?
Identifying what’s to publish and what’s not to: Challenges
Assessing what companies have been doing
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