Read this update if you are a firm subject to MiFID II transaction reporting obligations. This update will also be of interest to your clients who are legal entities or structures, including a company, charity or trust, and eligible for an LEI.
Who MiFID II transaction reporting obligations apply to
We communicated in CP15/43 its expectation that MiFID investment firms (excluding collective portfolio management investment firms but including authorised credit institutions), operators of trading venues and UK branches of third country investment firms must comply with transaction reporting obligations.
How MiFID II impacts LEIs
From 3 January 2018 firms 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.
What an LEI is
An LEI is a unique identifier for persons that are legal entities or structures including companies, charities and trusts. The obligation for legal entities or structures to obtain an LEI was endorsed by the G20 (the leaders of the 20 largest economies). Further information on LEIs, including answers to frequently asked questions, can be found on the Legal Entity Identifier Regulatory Oversight Committee (LEIROC) and Global Legal Entity Identifier Foundation (GLEIF) websites.
The purpose of an LEI
An LEI is a code unique to that legal entity or structure. When an LEI code is allocated to you, the code is included in a global data system. This enables every legal entity or structure that is a party to a relevant financial transaction to be identified in any jurisdiction.
What you need to do
If you are subject to MiFID II transaction reporting obligations or are a UK branch of a third country firm, you will need to ensure that your 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, from 3 January 2018. These financial instruments include shares, bonds, collective investment schemes, derivatives and emission allowances meeting the conditions in article 26 MiFIR.
If you are a client who is a legal entity or structure, including a company charity or trust, you will need to make arrangements to obtain an LEI code if you want the firm to continue to act on your instructions or make a decision to trade on your behalf from 3 January 2018 onwards.
How to obtain an LEI
An LEI is available from bodies accredited by the GLEIF, or bodies endorsed by the LEIROC, as an authorised Local Operating Unit for the global allocation of LEIs. A list of all Local Operating Units can be found on the GLEIF’s website.
The GLEIF has also introduced the concept of a ‘registration agent’ to assist legal persons to access Local Operating Units. Issuing and arranging for the issue of an LEI is not an activity required to be regulated by us.
A Local Operating Unit may charge a fee for allocating the LEI. The precise fee is at the discretion of the Local Operating Unit.
Renewing your LEI annually
To renew your LEI you must provide the Local Operating Unit with updated information so that it may verify the data held on the LEI. The Local Operating Unit may charge the holder of an LEI an additional annual fee per LEI for this annual renewal process.
Firms need, as part of having effective systems and controls, to have adequate client details. However, the requirement under MiFID II to renew the LEI on an annual basis applies to firms that are subject to MiFIR transaction reporting obligations and in the UK, under our implementation of MiFID II, to UK branches of non-EEA firms when providing investment services and activities.
This issue is covered in the ESMA guidelines which state (section 5.5):
"While executing Investment Firms should ensure that their LEI is renewed according to the terms of any of the accredited Local Operating Units for the Global Entity Identifier systems pursuant to Article 5(2) of the Commission Delegated Regulation (EU) 2017/590, there is no requirement under Article 13(3) to ensure that a LEI for a client or a counterparty has been renewed."
For any additional questions please email [email protected]