European Securities and Markets Authority Issues Statement on Introduction of the Legal Entity Identifier Requirements Under the Markets in Financial Instruments Regulation

by Shearman & Sterling LLP
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Shearman & Sterling LLP

The European Securities and Markets Authority has published a statement in response to indications that not all investment firms will succeed in obtaining Legal Entity Identifier codes from all their clients that are legal persons ahead January 3, 2018 when the Markets in Financial Instrument Regulation takes effect. There is also concern that trading venues may not obtain LEI codes for non-EU issuers in time.

Under MiFIR, investment firms are required to identify all clients that are legal persons with an LEI code. An investment firm is acquired to obtain the LEI code of a client prior to providing any service that triggers the obligation to submit a transaction report for a transaction entered into on behalf of a client who is eligible for the LEI code. Trading venues must also identify each issuer of a financial instrument traded on their systems with an LEI code when making daily submissions to the Financial Instruments Reference Data System.

ESMA has confirmed that, for a temporary period of six months from January 3, 2018:

(1) investment firms may provide a service triggering the obligation to submit a transaction report to a client from which it has not obtained an LEI code, provided that, before providing the service, the investment firm obtains the necessary documentation from the client to apply for an LEI code on the client's behalf; and

(2) trading venues may report their own LEI codes instead of LEI codes of non-EU issuers while reaching out to those non-EU issuers.

ESMA states that this practice will be accepted only on a temporary basis and national regulators should closely monitor the timelines, accuracy and completeness of the submitted transaction reports. ESMA recognizes that this temporary practice will also require national regulators to amend a validation rule in their transaction reporting systems to allow for the acceptance of transaction reports where the LEI is issued after the transaction execution date.

In the UK the Financial Conduct Authority has issued a statement in response to ESMA's statement. The FCA confirms that it will need to temporarily amend a validation rule in its transaction reporting system, the Market Data Processor. The FCA proposes to make this amendment as soon as possible, which may be after January 3, 2018. Firms should not seek to submit reports without the necessary LEI until the change to the validation rule has been made.

View the ESMA statement.

View the FCA statement.

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