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FCA Response to ESMA’s Public Statement on LEIs

On 20 December, the European Securities and Markets Authority (ESMA) issued a public statement to support the smooth introduction of the Legal Entity Identifier (LEI) requirements for MiFID II implementation. This statement outlines temporary measures in respect of LEIs for clients that are legal persons and LEIs for issuers. The FCA recognises the importance of LEIs to deliver safer and cleaner markets, but also the need that ESMA has identified for a smooth introduction to the new regime.

In recent weeks, ESMA and national competent authorities (NCAs) learnt that not all investment firms will succeed in obtaining LEI codes from all their clients ahead of the entry into force of MiFIR on 3 January 2018. The same may be the case for trading venues’ non-EU issuers whose financial instruments are traded on European trading venues.

In that context, and to support the smooth introduction of the LEI requirements, ESMA will allow for a temporary period of six months during which:

  • investment firms may provide a service to the client, from which it did not previously obtain an LEI code, that triggers the obligation to submit a transaction report, under the condition that before providing such a service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf
  • trading venues report their own LEI codes instead of LEI codes of non-EU issuers currently not having their own LEI codes

LEIs for clients as Legal Persons

The temporary process outlined in ESMA’s statement for LEIs of legal persons will last for six months from 3 January 2018. As ESMA’s statement notes, this approach requires the FCA to temporarily amend a validation rule in its transaction reporting system, the Market Data Processor (MDP). It will do this as soon as possible, but that change will not be made by 3 January. The FCA will communicate further with executing firms and Approved Reporting Mechanisms (ARMs) on this issue, including the date when it intends to make the change to the validation rule related to the LEI issuance date. Until then, executing firms should not seek to submit reports that would not normally pass that validation. The FCA will have the facility to accept these reports when the validation rule change has been made. The FCA continues to expect firms to make every effort to secure a client’s LEI before trading on their behalf. Its analysis shows that trading with missing LEIs is likely to represent a very small fraction of total trading volumes.

LEIs for IssuersThe FCA notes the ESMA statement on LEIs for issuers, which allows venues, for a period of six months, to use their own LEIs in place of missing issuer LEIs in respect of non-EEA issuers. Trading venues should continue their efforts to populate missing LEI data for issuers. FCA supervisors will be in contact with venues to discuss their progress in reducing the number of missing LEIs.