Obtaining a Legal Entity Identifier (LEI) in compliance with MiFID II

Obtaining a Legal Entity Identifier (LEI) in compliance with MiFID II

In light of the implementation of the Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and the accompanying Markets in Financial Instruments Regulations 600/2014/EU (MiFIR), in an effort to achieve further transparency and improvement of the functioning of the internal market of the European Union, all entities that must comply with the transaction reporting obligations under MiFID II should apply and acquire their own Legal Entity Identifier (LEI). Such obligation is paramount for the relevant entities, as the reporting of reference data of the transactions under MiFID has already begun and entities who do not obtain their LEI will not be able to trade on behalf of their clients and/or otherwise transact with relevant parties as of the 3rd of January 2018. This publication provides further information on the nature of the LEI, its purpose and effect, the reported information, details on who must obtain a LEI and information on obtaining a LEI by Cypriot entities.

LEI Definition

The LEI is a 20-digit alphanumeric code that connects to key reference information which enables clear and unique identification of legal entities participating in financial transactions. When a LEI is allocated to an entity, the code is included in a global data system. This enables every legal entity or structure participating in a financial transaction such as admitting to trading or trading financial instruments to be identified in any jurisdiction by the relevant competent authorities.

Purpose and Effect of LEI

The LEI of an issuer of a financial instrument is crucial for achieving transparency in the financial market as interested parties of any transaction may be able to search and identify the reference data of a counterparty. It is also used to determine which national supervisor is responsible for monitoring the specific transaction. Under MiFIR the responsible supervisor should be the one where the registered office of the issuer is located, and such information are only available through the LEI reported data. The European Securities and Markets Authority (ESMA), in its briefing issued on 9^th of October 2017, has stated that it does not accept any solution that would waive or mitigate the obligation to report this information.

Reported Information

The information of an entity that has acquired a LEI will be available on the Global LEI Foundation (GLEIF) website where a search function is available to users allowing them to check if an entity has a LEI and access the reference data accordingly.

The following information is available:

1. Entity Details: LEI Code, Legal Name, Other names, Business Registration number and ID, legal jurisdiction, legal form, associated entity, entity status, expiration date and reason, successors;
2. Legal Address and any other addressees; and
3. Registration Details.

Who must apply for a LEI

According to the above mentioned briefing by the ESMA issued on 9^th of October 2017 the following entities must obtain a LEI:

1. Counterparties to derivatives contracts as well as beneficiaries, brokers, Central Counterparties and clearing members;
2. Issuers of financial instruments; entities involved or reporting in suspicious transactions;
3. Credit and financial institutions;
4. Funds and fund managers;
5. Credit rating agencies and rated entities;
6. Pension funds and insurance companies;
7. Central Securities Depositories (CSD), CSDs’ participants;
8. Issuers of financial instruments listed on Regulated Markets;
9. Parties involved in securities financing transactions and the beneficiaries of the rights and obligations arising from;
10. Issuers of securities offered to the public or admitted to trading on a regulated market situated or operating within a European Member state; and
11. All entities specified under MiFID II and MiFIR, more specifically:

• investment firms that execute transactions in financial instruments;
• the clients (buyer, seller) on whose behalf the investment firm executes transactions, when the client is a legal entity;
• the client of the firm on whose behalf the trading venue is reporting under MIFIR Article 26 (5), when the client is a legal entity;
• the person who makes the decision to acquire the financial instrument, when this person is a legal entity e.g. this includes investment managers acting under a discretionary mandate on behalf of its underlying clients;
• the firm transmitting the order;
• the entity submitting a transaction report (i.e. trading venue, ARM, investment firm); and
• the issuer of any financial instrument listed and/or traded on a trading venue.

The collection and verification of the LEI of the clients of an investment firm reporting under Article 26 MiFIR must occur before the transaction takes place so to ensure that the length and construct of the code are compliant with the ISO 17442 standard. Additionally, an operator of a Trading Venue under Article 27 MiFIR should also collect and verify of the LEI of any entity whose financial instrument is admitted to trading or traded in its venue so as to ensure compliance with the same ISO standard.

Obtaining a LEI by Cypriot Entities

The process of obtaining a LEI is facilitated through contacting a preferred LEI issuing organisation, also known as the Local Operating Unit (LOU). The Supervisory Authority that coordinates and supervises the issuance of LEI codes is the ‘Legal Entity Identifier Regulatory Oversight Committee’ (LEIROC) and the codes are issued by certifying LOUs.

For entities that operate or are established in Cyprus, the procedure is done through the Cyprus Stock Exchange (CSE) who,  on the 07 October 2016, entered into an agreement / cooperation with the London Stock Exchange (LSE or Unavista) for the supply of LEI codes to interested legal entities, through, what is called the “Assisted Registration” process.

The application is made to the Central Securities Depository/ Registry of the CSE who will validate the legal documents, collect the applicable fees and upload the necessary information in the Unavista platform upon receiving the relevant authorization by the applicant.  Thereafter, the CSE will monitor the code issuing process and upon its finalization, will forward it to the applicant.

The application entails a preliminary submission of the appropriate application form and supporting documentation, by email, and once approved by the CSE, the original of the aforementioned documents are formally submitted together with proof of payment of the relevant EUR138 fee.

For more information as to obtaining a LEI for Cypriot entities feel free to contact Eleni Miltiadous at [email protected] or Varnavas Playbell at [email protected].