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Do you have an LEI code?

The much awaited MiFIDII deadline is January 3. Accordingly, the European Securities and Markets Authority (ESMA) issued a statement last week to support the implementation of Legal Entity Identifiers (LEI) requirements under the Markets in Financial Instruments Regulation (MiFIR).

MiFIR requires EU investment companies to use LEIs to identify their clients that are legal persons for MiFID II transaction reporting. LEIs also need to be used for identification of issuers of financial instruments by trading venues. The LEI records will be used for daily data submission to the Financial Instruments Reference Data System (FIRDS).

Primarily, the ESMA seeks to ‘support the smooth introduction of the LEI requirements.’ The statement also boosts industry awareness of the potential lack of compliance and reminds investment firms and others involved to ensure they are compliant as soon as possible, if the Jan 3 deadline can no longer be met.

One of the reasons why the MiFIDII compliance deadline was delayed is because all clients of EU investment firms and any entity issuing financial instrument traded on European trading venues will be affected by this LEI reporting requirement.

The ESMA statement shows that they and national competent authorities are aware not all investment firms will be compliant with LEI requirements before Jan 3. Considering this and the difficulty involved with regulating non-EU issuers of financial instruments whose products are traded on EU markets, the ESMA announced they will allow for a temporary period of six months that:

  1. investment firms may provide a service to clients without an LEI, provided the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf; and
  2. trading venues report their own LEI codes instead of LEI codes of the non-EU issuers while reaching out to the non-EU issuers.

LEIs, a 20-digit, alpha-numeric identification code, are integral to the new data reporting scheme introduced by the MiFIDII. They are also crucial to ensure transparency and market surveillance by the regulators.

By Grace Appleford, Research Analyst for Holland FinTech.]]>

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