If you are engaged in financial transactions, there is a good chance that you will need to obtain a Legal Entity Identifier (“LEI”), if you have not already done so. Counterparties subject to reporting requirements under the European Markets Infrastructure Regulation 648/2012 (“EMIR”) must have a LEI (as opposed to an interim entity identifier) from 1 November 2017. Any entity using an investment firm for a service that will result in a transaction reporting requirement under the Markets in Financial Instruments Regulation 600/2014 (“MiFIR”) must be able to provide that investment firm with a LEI from 3 January 2018.
The LEI was introduced globally in response to the financial crisis and permits immediate and accurate identification of all parties to a financial transaction. As well as serving as a management tool in analysing counterparty risk, the Global LEI System (“GLEIS”) can help contain market abuse and curtail financial fraud. The LEI is a 20-character, alpha-numeric code that enables clear and unique identification of an entity that is issued with a LEI participating in financial transactions.
EU Financial Services Legislation and the LEI
The requirement (or recommendation) to use a LEI is embedded in EU financial services legislation, including both EMIR and MiFIR.
EMIR mandates reporting of all derivatives to Trade Repositories ("TRs"). Under EMIR, all trade reports to TRs must, from 1 November 2017, identify entities by their LEIs: interim entity identifiers are no longer a valid means of identification from that date.
MiFIR imposes transaction reporting obligations on certain entities, including inscope investment firms and operators of trading venues. Reporting entities must use their clients’ LEIs in order to identify those clients when reporting transactions. Consequently, from 3 January 2018, a reporting entity will not be able to provide a service that would result in a transaction reporting obligation where the relevant client is eligible for a LEI and does not have one.
Other EU legislation that requires or recommends the use of a LEI includes:
- Market Abuse Regulation 596/2014
- Capital Requirements Regulation 575/2013, and
- Solvency II Directive 2009/138.
Issuers subject to the Transparency Directive 2004/109 have been required to have a LEI since 1 January 2017. According to Commission Delegated Regulation 2016/1437, Officially Appointed Mechanisms (OAMs) have been required to use LEIs as unique identifiers for each issuer of securities admitted to trading on a regulated market, since that date.
The Global Legal Entity Identifier Foundation provides an overview of EU and third-country current and proposed regulatory activities including the use of the LEI on its website here.
Obtaining a LEI
LEIs are issued by "Local Operating Units" (“LOUs”) of GLEIS. A legal entity is not limited to using a LEI issuer in its own country; instead, it can use the registration services of any LOU that is accredited and qualified to validate LEI registrations within its authorised jurisdiction(s). A list of all LOUs may be found here.
A LOU may charge a fee for allocating the LEI and the precise fee is at the discretion of the relevant LOU.
Each legal entity is required to recertify its LEI annually to ensure the data is correct.