Stephan Wolf, CEO of the Global Legal Entity Identifier Foundation (GLEIF).
What obligations relevant to the Legal Entity Identifier (LEI) are triggered by the forthcoming MiFID II / MiFIR?
Market participants that must comply with the forthcoming European Union (EU) revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) should obtain an LEI as soon as possible. Failure to obtain an LEI (by the firm or its client) in time will prevent firms from being able to comply with the reporting requirements applicable in the EU as of 3 January 2018.
With regard to transaction reporting under MiFIR, the European Securities and Markets Authority (ESMA) has clarified that investment firms should obtain LEIs from their clients before providing services which would trigger reporting obligations in respect of transactions carried out on behalf of those clients.
ESMA has also confirmed to GLEIF that compliance with MiFIR requires investment firms to maintain its own LEI duly renewed. This means that the reference data, i.e. the publicly available information on legal entities identifiable with an LEI, is re-validated annually by the managing LEI issuer against a third-party source. An investment firm should therefore ensure that its LEI is renewed by the date stated with its LEI record.
How can market participants globally, who trade in the EU, ensure they meet compliance requirements related to LEI established with MiFID II / MiFIR?
The MiFID II / MiFIR implementing legislative acts require a significant number of actors – located within as well as outside of the EU – to obtain an LEI that are under no such obligation to date.
To further streamline the issuance of LEIs, GLEIF has introduced the concept of the ‘Registration Agent’, which allows organisations to help their clients to access the network of LEI issuing organisations. The Registration Agent’s role in the Global LEI System is directly connected to the LEI issuing organisation. LEI issuers – also referenced as Local Operating Units – supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI. The Registration Agent may choose to partner with one or more LEI issuing organisations to ensure its clients’ needs for LEI services are met. The LEI issuers are standing ready to assist legal entities to obtain an LEI as well as to collaborate with firms interested in acting as a Registration Agent.
How can accessing the LEI data pool aid and simplify regulatory reporting?
Following the financial crisis, the goal of the drivers of the LEI initiative - the Group of 20, the Financial Stability Board and many regulators around the world – was to use the LEI to create transparency in the derivatives markets.
As demonstrated with the current LEI population, these efforts have generated excellent results. At the end of June 2017, some 520,000 LEIs were assigned to legal entities active, primarily, in the derivatives markets. Most of these entities are based in the US and EU where regulations require the use of LEIs to uniquely identify counterparties to transactions in regulatory reporting. Public authorities in these jurisdictions rely on the LEI to evaluate risk, take corrective steps and, if required, minimise market abuse and improve the accuracy of financial data.
Do you see benefits arising from having an LEI beyond complying with regulatory reporting requirements?
Yes. We invite market participants to think beyond compliance and consider the business case for obtaining an LEI. Organisations across the globe not only need to keep on the right side of the regulators, but also need to be able to make smarter, less costly and more reliable decisions about who to do business with.
The trouble is that up until now, legal entity reference data has been proprietary, siloed and non-standardised. The good news is, there is a solution and progress towards unlocking it is already well under-way. It exists in the form of the Global LEI Index. This is the only online source, made available by GLEIF, that provides open, standardised and high quality entity reference data with the potential to capture any entity engaging in financial transactions globally.
Once fully deployed by market participants, using the LEI data pool will empower organisations across the board to simplify and accelerate operations and gain deeper insight into the global market place. If your counterparts – corporate customers, providers and other business partners – could all be uniquely, easily and speedily identified with the LEI, that would provide you with cost benefits and new business opportunities. Accessing and using the LEI data pool could support a multitude of applications in, for example, risk management, compliance and client relationship management.
The benefits generated for the wider business community by the Global LEI Index grow in line with the rate of LEI adoption.
So, our message to businesses around the globe is this: Get an LEI and make it work for you.
Why will you be speaking at ECN’s RegTech Summit Europe, and what do you hope to get out of the event?
I very much look forward to meeting and speaking with industry representatives spearheading initiatives designed to ensure regulatory compliance based on innovative applications that will ultimately help creating more transparent markets.