MiFID II: Why You Should Apply for an LEI Now, Despite the Deadline Extension

MiFID II: Why You Should Apply for an LEI Now, Despite the Deadline Extension

Since the beginning of January, the EU’s new MiFID II rules have been ensuring greater transparency in financial markets. One of the new regulation’s most important aspects is the Legal Entity Identifier (LEI) requirement. This globally standardized financial identification number was to be mandatory for reportable financial transactions at the beginning of 2018. However, the official statement by the European Securities and Markets Authority (ESMA) which was released just before Christmas confused many legal entities. In particular, the European market oversight entity seemingly granted all participants in the financial market a 6 month application grace period. But what exactly does this extension entail and what does that mean for individual legal entities?

The LEI Deadline Extension in Practice

ESMA’s statement may mistakenly give the impression that reportable transactions are possible up until the middle of the year 2018 without an LEI – but the truth is not quite that straightforward. Banks are in fact allowed to carry out reportable transactions without LEI. However, they must first check the principal LEI eligibility of the financial market participant – and then apply for an identification code on their behalf. The deadline extension is, for that reason, simply a temporary solution.

The LEI deadline extension is simply a temporary solution. Pic: Loic Djim

In concrete terms, this interim solution means that banks need the same documentation from their clients as LEI contracting entities – and a power of attorney. Far from simplifying the procedure for financial market participants, it rather produces more work.

Why was this temporary solution necessary in the first place? At the end of last year, as the January 3, 2018 deadline quickly approached, the number of LEI applications rose rapidly worldwide – an influx that certain contracting authorities, such as the London Stock Exchange, warned would no longer make timely processing of applications possible. In turn, ESMA responded.

Apply for Legal Entity Identifier Quickly

Despite nearly 900,000 LEIs being issued in the meantime, in our view, there is still insufficient coverage. LEI obligations for reportable transactions aren’t only applicable to companies, but are also mandatory for investment funds, foundations, insurance companies as well as companies dictated by civil law. Similarly, all clubs that are active on capital markets need a financial identification number – even if very small, as capital markets transactions have no de minimis limit. A such, countless legal entities exist that have yet to be assigned an LEI.

The EQS LEI MANAGER assigns your LEI within 24 hours.

For these reasons, I strongly advise all legal entities that do not yet have an LEI to act quickly and apply. A failure to do so could lead to the trap many fell into last December and poses the risk to financial market participants of being without an LEI. It is unlikely that regulators will be lenient to those without LEIs, given the long lead time. Our offer: our EQS LEI MANAGER assigns your LEI within 24 hours – even when you submit a large number of applications.

Sven Schenkluhn
En tant que Directeur Général Adjoint Allemagne, Sven est responsable du département Service de Données d'EQS Group et du développement de l'EQS LEI MANAGER.
As Deputy Managing Director Germany, Sven is responsible for the business unit Data Services of the EQS Group and for the development of the EQS LEI MANAGER.
Sven è Deputy Managing Director Germany ed è responsabile della devisione Data Services dell’EQS Group e dello sviluppo dell’EQS LEI MANAGER.
Sven ist als Deputy Managing Director Germany verantwortlich für den Geschäftsbereich Datenservices der EQS Group und die Entwicklung des EQS LEI MANAGER