Ensure clients register before 3 January to avoid being caught out when MiFID II becomes law.
New EU rules (MiFID II/MIFIR) take effect on 3 January 2018. Investment firms are required to obtain Legal Entity Identifiers (LEIs) from their clients before providing services. The investment firms need to report the trades and reference the LEI. This means that without an LEI there would be no trade.
The new rules apply from 3 January 2018 when MiFID II becomes effective in the UK and Europe. When an investment firm trades financial products, it has to tell the FCA the details of those trades so the FCA can use the information to monitor the functioning of the financial markets and investigate possible market abuse.
This reporting regime is called transaction reporting and it is set under the Markets in Financial Instruments Regulation (MiFiR). The details include information about the financial product (eg shares, bonds…), the transaction itself (eg where and when the trade took place) and those persons involved, including the client (where one exists).
Legal entities and individuals acting in a business capacity who are clients or counterparties of FCA regulated investment firms (such as the clients of ACCA members – eg charities, trusts) that have to report transactions must have a LEI if they wish to trade from 3 January 2018.
For example a charity with an investment portfolio may have internal or external investment managers. To trade they would need an LEI. It could be the case that their external investment managers have applied for an LEI or it’s possible that they will need to apply directly. Checks should be made as from 3 January - put simply, no LEI, no trade.
Authorised professional firms which provide investment services in an incidental manner in the course of their professional activity do not themselves require an LEI in respect of services performed on behalf of their clients. Therefore, any ACCA members that fall into this category will not need to apply for an LEI.
However, clients of ACCA practitioners such as corporate entities, public bodies, councils, charities and trusts will need an LEI from 3 January 2018 when transacting with investment firms. If they don’t have an LEI, they will not be able to trade financial instruments, including shares, bonds and collective investment schemes with their financial service provider.
Speak to your investment manager to see if you need an LEI or if they have applied on your behalf.
How to obtain a LEI
A Local Operating Unit (LOU) which is accredited by the Global LEI Foundation is responsible for the issuance and administration of an LEI. For example in the UK there is the London Stock Exchange (LSE)
An LOU may charge a fee for the allocation of an LEI; the precise fee is at the discretion of the LOU. The LSE charges £115 + VAT for issuing an LEI and a further annual charge of £70 + VAT for each renewal.
In regards to the cost of the LEI, it should be noted that if you are a client not subject to MiFIR transaction reporting obligations, once you have obtained a LEI, there is no transaction reporting regulatory obligation to renew your LEI.
Furthermore, other LOUs in different countries accredited by the Global LEI Foundation can be used to obtain an LEI.