15 May 2017

MiFID II: will your entity be ready?

Entities are required to obtain a unique identifier as part of the new rules under MiFID II or suffer the consequences of their investment manager being unable to transact on their behalf.


Investor protection and transparency are two key areas where MiFID II aims to improve upon the existing rules and a critical element of this is the notion of transaction reporting; but for the new system to work every client has to have a unique identifier.

For individuals, the National Insurance number can generally be used as the identifier, but for entities, such as companies, charities and trusts there is not a generic identifier in existence today. Which is why one of the new requirements that take effect from January 2018 is the obligation for entities to have a Legal Entity Identifier (LEI).

An LEI is a unique, 20-character alphanumeric identifier for persons that are legal entities or structures including companies, charities and trusts and is designed to create a global reference data system that uniquely identifies every legal entity or structure that is party to a financial transaction. The obligation for legal entities or structures to obtain an LEI was endorsed by the G20 (the leaders of the 20 largest economies) and is coordinated by the Global LEI System or GLEIS.  To aid the allocations of LEIs, Local Operating Units (LOU) have been established, one of which is the London Stock Exchange (LSE).

Entities that require an LEI include Trusts (but not Bare Trusts), Companies (Public and Private), Pension Funds (but not Self-invested Personal Pensions), Charities and Unincorporated Bodies with each individual entity required to provide to the LOU, amongst others, the following data:

- Entity name and legal form
- Headquarters address
- Legal formation address
- Business registry
- Related identifiers

For most entities the requirements are fairly straightforward, but for some trusts, such as Will trusts, providing, for example, an address for their headquarters may not be so clear cut.  Combine this with the expectation of the London Stock Exchange for a last minute rush to obtain LEIs before the January 2018 deadline and a sense of urgency might begin to creep into the consciousness of trustees, solicitors and other relevant entity officers with responsibility for investment assets.  If an LEI is not obtained in time, the investment manager may not be permitted to carry out any transactions on behalf of that client, which could have adverse consequences.

To apply for an LEI, which will also have to be renewed on an annual basis, visit www.lseg.com/LEI.

JM Finn & Co has launched an LEI Application Service to assist its clients in obtaining an LEI. If you are a client of JM Finn & Co and you believe you or your organisation will require an LEI, please contact your investment manager.

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