On December 20, 2017, the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA) both issued statements to facilitate the smooth introduction of the Legal Entity Identifier (LEI) requirements under the Markets in Financial Instruments Regulation (MiFIR).
The ESMA statement outlines temporary measures in respect of LEI for clients that are legal persons and LEI for issuers.
It is a requirement of MiFIR for investment firms to identify their clients that are legal persons with an LEI. MiFIR also expects trading venues to use the LEI codes pertaining to a given issuer when submitting reference data on financial instruments.
Some investment firms and trading venues are experiencing difficulties in obtaining LEIs from their respective clients and non-EU issuers. Thus, ESMA has allowed for a temporary period of six months from January 3 2018 that:
- Investment firms may provide investment services to a client without an LEI, on the condition that before providing such services, the investment firm obtains the necessary documentation from this client to apply for an LEI code on its behalf
- Trading venues report their own LEI codes instead of those of the non-EU issuers, while trying to obtain the non-issuer’s rel="noopener noreferrer" LEI
The FCA statement notes, in respect of LEIs for clients as legal persons, that ESMA’s approach will require the FCA to temporarily amend a validation rule in its transaction reporting system. Until the FCA has sufficient time to make this change to its system, which will not be made by January 3 2018, it will not have the facility to accept applicable reports.
Action Required for UK Firms
If a UK firm meets the conditions set out above, it should not report relevant transactions until the FCA, and the Approved Reporting Mechanism (ARM) has introduced the new validation rules and confirmed when reporting is to commence. The firm should then back report the relevant transactions, subject to further guidance from FCA and the firm’s ARM.