Legal Entity Identifiers (LEI’s) – Do you need one?

If you hold any form of investment, whether it be stocks, company shares, investment bonds, etc., you may well have heard of a Legal Entity Identifier (LEI) – but what is it, what does it do, and more importantly … do you need one?

In January 2018, the UK will become subject to new legislation brought about by the Markets in Financial Instruments Directive II (MiFID II) regulations.  MiFID first came into force in the UK in November 2007 when its aim was to increase competition and consumer protection in the financial services sector across the European Economic Area (EEA).  However, lessons learned from the ‘financial crisis’ along with the desire to strengthen consumer protection have led to the updating of the regulations.

Transaction Reporting & Unique identifiers

Perhaps one of the biggest changes to be brought about by MiFID II relates to the transaction reporting rules, which are designed to ensure that Investment Firms report post-trade information to the Financial Conduct Authority (FCA) to help them to detect and deter market abuse. In addition to this, from the 3rd January 2018, Investment firms must also ensure that prior to trading in any ‘reportable financial instrument’ they hold an appropriate unique identifier.  For individual’s this will be their N.I. number, and for a Legal entity, this will be a Legal Entity Identifier (LEI).

Legal What is a Legal Entity Identifier (LEI)?

Legal Entity Identifier’s (LEI’s) are unique alphanumeric 20-character codes that are used to identify legal entities that undertake investment transactions in ‘reportable financial instruments’. The LEI was introduced so that all counterparties to transactions can be quickly identified and serve as a tool for the regulatory authorities in monitoring trading activity and detecting market abuse.

Legal Entities include trusts (but not bare trusts), companies (public and private), pension funds (but not self-invested personal pensions), charities and unincorporated bodies. If the entity does not obtain an LEI, it will not be able to trade on the financial markets in the UK after 3 January 2018.

Reportable Financial Instruments include investments such as company shares, ETF’s, VCT’s, investment trusts, warrants, gilts, corporate bonds and any other investment executed on a trading venue (historically this would have equated to “listed on the stock market” however the definition has been widened to also incorporate electronic dealing facilities). It is however unlikely to include investments such as Unit Trusts and Open-Ended Investment Companies (OEIC’s).

Do I need one?

To establish whether you need to obtain an LEI, you should ask yourself the following two questions:

  • Are you a Legal Entity?
  • Is the transaction you are looking to make (whether it be buy, sell or transfer) a ‘reportable financial instrument’?

If the answer to both above questions is yes, then it is very likely that you will require an LEI.

How do I obtain an LEI?

LEI’s are issued by the London Stock Exchange and currently cost £115 + VAT to obtain, with an annual fee of £70 + VAT. Some Investment Firms may also be able to apply for an LEI on your behalf, but this varies from Firm to Firm.

The good news is that you will only need one LEI code per legal entity which you can then provide for all transactions in Financial Instruments – however, you will need to ensure that you renew this on an annual basis.

 

Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. This article is distributed for educational purposes and should not be seen as advice.

 

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