MiFID 2 and the LEI Requirement
|
MiFID 2 is a 2018 revised version of the original MiFID regulations introduced by ESMA (European Securities Monetary Authority). MiFID II/MiFIR has finally entered into force on 3 January 2018. This legislative framework strengthens investor protection and improve the functioning of financial markets making them more efficient, resilient ,and transparent. MiFID 2 sets the framsework for a conduct of business and organisational requirements for investment firms. It sets authorisation requirements for regulated markets. Provides a regulatory reporting structure to avoid market abuse. MiFID II also sets the rules on the permission of financial instruments to trading.
The Markets in Financial Instruments Directive (MiFID) has been a cornerstone of European Union regulation since November 2007. It aims to improve competition among member states by generating one market for investment services and activities, while also guaranteeing protection against investor risks when investing their money through financial instrument sales such as stocks or bonds purchased on exchanges around Europe - all within high degree systematized guidelines set out beforehand. |
According to ESMA, the Legal Entity Idnetifier (LEI) is a cornerstone of bringing about the changes desired from MiFID 2. You can read the ESMA paper on LEIs here. ESMA have gone ahead and coined the following mantra within European markets:
The MiFID 2 LEI Requirement
No LEI, No Trade; |
The European Union has several laws that ensure the safety and security for all members. One such law is MiFID II, which requires financial instruments admitted to trade on an EU venue (such as London) must have an LEI or “ leash". As seen in RTS 23 Trading Venue Data Elements - Requirements For Admissions And trades between 22 different countries every day , trading venues are required by ESMA provide them with lists containing names/codes associated each time any new instrument enters circulation so they can keep track down financial crime.
|
The European Union has made it clear that investment firms must be able to identify counterparties who are legal entities in transactions with them. ESMA requires this for the purpose of identifying any companies or people involved, which is why you'll find LEIs on every transaction report from now onward.
You will need to make sure that any of your clients who are eligible for Legal Entity Identifiers (LEIs) have been issued one. Otherwise, you won't be able execute transactions on their behalf under MiFID II transaction reporting obligations in financial instruments .
You will need to make sure that any of your clients who are eligible for Legal Entity Identifiers (LEIs) have been issued one. Otherwise, you won't be able execute transactions on their behalf under MiFID II transaction reporting obligations in financial instruments .
Investment firms shall not provide a service that would trigger the obligation of an investment firm to submit a transaction report for a transaction entered into on behalf of a client who is eligible for the legal entity identifier code, prior to the legal entity identifier code being obtained from that client.”
- Regulatory technical and implementing standards – Annex I; MiFID II / MiFIR RTS 22 Article 13
You can read the full speech of ESMAs Executive Director, Verena Ross here, titled; MiFID 2 - An Important Step for the LEI. Verena goes on to list the reason that ESMA have adopted the LEI. She claims the LEI is needed to supervise the correct reporting by financial services firms and to monitor positions in commodities derivatives under the MiFID II position limits and position managements controls regime. The LEI is important for our work on transparency because it helps us to accurately determine whether or not orders and transactions in financial instruments are subject to real-time Transparency requirements. In order that we can properly classify an asset class, there's reliance upon this documentation from time immemorial. The LEI is also needed to supervise the correct reporting by financial services firms and monitor positions in commodities derivatives under MiFID II's position limits, management controls regime. The types of legal entities falling under the scope of MiFID2, and thus requiring an LEI Code would be regulated firms and vehicles engaging in financial transactions such as Funds and Trusts, or Pension Schemes.
Other European Regulations Requiring the use of the Legal Entity Identifier
The LEI requirements is valid under a litany of EU laws, primarily driven by ESMA. For example the European Markets Infrastructure Regulation (EMIR) is one of the utmost governing regulations within the UE Financial marketplace. The Securities Financing Transactions Regulation (SFTR) regulation governs securities and investments markets within the EU and it likewise requires counterparties to securities and derivatives transaction be identified by way of an LEI. Closely to the SFTR regulation is the Central Securities Depositories Regulation (CSDR) regulations, requiring intermediaries such as Central Securities Depositories utilise an LEI to identify the two parties utilising their CSD system to transact, as it is both global, standardised and common to both parties.
LEI Reporting Deadlines
Deadline |
Entities which fall under the rule |
LEI Requirement |
13 April, 2020 (extendted to July due to COVID19) |
SFTR parties; Investments firms, creditors etc |
Yes |
13 July, 2020 |
Central Security Depositories |
Yes |
13 October, 2020 |
Funds, Insurance companies, pension funds |
Yes |
13th April, 2021 |
SFTR; Third country issuers |
Yes |
Examples of these regulations are:
- European Markets Infrastructure Regulation (EMIR)
- Markets in Financial Instruments Directive II (MiFID II)
- Securities Financing Transactions Regulation (SFTR)
- Central Securities Depositories Regulation (CSDR)
- Shareholder Rights Directive II (SRD II)
LEI Worldwide provide a registration portal through which you can quickly, and easily register LEIs for EU entities. The LEI application process takes less than 10 minutes and for EU countries the LEI issuance timeframe is between a few minutes to an hour.
In order to prevent your LEI from lapsing, select auto-renewals at checkout.
If you have any questions or would like to find out more about LEIs and MiFID requirements please contact support at [email protected]
In order to prevent your LEI from lapsing, select auto-renewals at checkout.
If you have any questions or would like to find out more about LEIs and MiFID requirements please contact support at [email protected]
Join thousands of market participants and obtain your hassle-free LEI today.
