ESMA warns period for smooth introduction of LEIs not to be extended after July 2018

Maria Nikolova

The temporary period will last until July 2, 2018, as ESMA has concluded that there is no need to extend it further.

MiFID II implementation likely to be set back even further

The European Securities and Markets Authority (ESMA) has earlier today informed reporting firms that will not extend further the temporary period allowing for a smooth introduction of the use of Legal Identity Identifiers (LEIs).

Let’s recall that reporting firms have to use LEIs to report trades under the Markets in Financial Instruments Regulation (MiFIR). The six months period was introduced in December 2017 due to the fact that not all firms had managed to obtain LEIs in time for the MiFID II start.

ESMA and National Competent Authorities (NCAs), however, have since seen a substantial rise in the LEI coverage for both issuers and clients. As a result, ESMA and NCAs have concluded that there is no need to extend the initial six month period granted to support the smooth introduction of the LEI requirements under MiFIR. The temporary period will last until July 2, 2018 (inclusive).

The activities of national regulators with respect to the LEI requirements will be shifting from monitoring to ongoing supervisory actions. ESMA and NCAs are coordinating the development of a common supervisory action plan focused on compliance with the LEI reporting requirements under the respective MiFIR provisions.

Following the 2008 financial crisis, the G20, the Financial Stability Board (FSB) and many regulators around the world have emphasised the need to make the Legal Entity Identifier (LEI) a global public good. The LEI provides a unique identifier for all entities participating in financial transactions which can be used cross-border, through a free and open database updated on a daily basis. This common framework plays an important role for regulators across the globe so that they can clearly identify each exposure for the risk management of financial transactions, to create transparency, and to conduct market surveillance.

The use of the LEI is required by or in the process of being implemented by other regulators with 90 pieces of future legislation envisaged across the globe, 75 of these outside the EU, ESMA has estimates. Finally, the LEI also generates important benefits for businesses in terms of cost reduction, improved risk management and increased operational efficiencies.

Accordingly, the LEI plays an important role under the new Markets in Financial Instruments Regulation (MiFIR) data-reporting regime. The code is essential for supporting regulators’ work on transparency and market surveillance, including the detection of market abuse. The LEI is also key for matching and aggregating market data for both MiFIR transparency and regulatory reporting.

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