What is LEI

A Legal Entity Identifier (LEI) is a unique 20-digit alpha-numeric code. LEI’s are recognised by regulators of financial markets worldwide as a universal code used to identify legal entities. The LEI code makes it easier for regulators to accurately identify parties engaging in financial transactions. This enables regulators to manage risks more effectively. With an LEI it can be determined which regulator is responsible for monitoring market activity for the relevant financial instruments.

Under European financial regulations LEI’s are already frequently used. For example, LEI’s are required under the Market Abuse Regulation (MAR) for issuers of financial instruments and under the European Markets Infrastructure Regulation (EMIR) for contracting parties to derivatives contracts. Since 1 January 2017 an LEI is also required for issuers of financial instruments listed on a regulated market in connection with obligations under the Transparency Directive.

New requirements

As a client of an investment firm it is possible that you will receive or already have received a letter informing you of new LEI requirements. This is because on 3 January 2018 the Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) will enter into effect. This will have an impact on investment firms subject to supervision, but also for legal entities which are clients of such investment firms. Clients of investment firms will have to obtain an LEI in order to let the investment firm concerned (continue to) trade on their behalf or to act on their instructions. As per 3 January 2018, investment firms will be obliged to report the LEI’s of all legal entities involved in a financial transaction to the relevant regulator. In the Netherlands, this is the Authority for the Financial Markets (AFM).

Under MiFID II/MiFIR issuers of financial instruments listed and/or traded on a regulated market trading venue must also have an LEI. The operator of the trading venue is obliged to report the LEI of the issuer to the relevant regulator.

Practical steps

A legal entity can obtain an LEI from an LEI issuer. In the Netherlands this is the Chamber of Commerce (Kamer van Koophandel). The Chamber of Commerce charges a one-off registration fee of EUR 65 for the first year and an annual fee of EUR 40 thereafter. The application process may take up to 10 working days. We note that this is longer than the timeframe which is suggested in a briefing by ESMA, which states that the application process should take 24 to 48 hours. Legal entities are not obliged to obtain an LEI from an LEI issuer registered in their own country, but can chose one based on their own specific needs and cost preferences.