Skip to main content

So, what is a Legal Entity Identifier (LEI)?

The Markets in Financial Instruments Directive II (MiFID II) comes into force next year, with one of its key objectives being market transparency. This will see a new section added to the FCA Handbook which refers to the requirement to make transaction reports to the FCA with regards to certain financial instruments. These reports have to be completed for all clients and, where the client is not a natural person (i.e. an individual), it will need confirmation of their Legal Entity Identifier (LEI).
An LEI is a unique identifier for a client which is a legal entity or structure.

Which clients need a Legal Entity Identifier (LEI)?

Most commonly clients of an advice firm, these will include:
  • Companies (public and private)
  • Charities 
  • Trusts (but not bare trusts) 
A natural person (including sole traders and partnerships) does not require a LEI as their national insurance number will identify their involvement in the purchase of a financial instrument.

What types of financial instruments need to be reported?

The range of instruments is extensive but other than more complex instruments, such as derivatives, options, futures, warrants, bonds, swaps, etc. the most common instruments likely to apply include:
  • Shares (in listed or unlisted companies) traded on a regulated market
  • Investment trusts
  • Exchange traded funds 
Perhaps more importantly, it should be noted that not all MiFID financial instruments are included, as the transaction reporting rules do not apply to units in a collective investment scheme (as the client does not hold the underlying instrument under their title). Therefore, an LEI is not required for a legal entity investing solely in collective investment schemes i.e. ISAs, OEICs, General Investment Accounts. For the avoidance of doubt, investment bonds and insured pension schemes are not covered by these requirements as they are not MiFID instruments.

What action should you take?

If you have a client that is a company, trust or charity, they will require an LEI where you recommend one of the financial instruments listed above. Failure to hold an LEI will mean they will not be eligible to complete the transaction. You should therefore identify any clients that will be affected by the forthcoming requirement. On informing them, you may also wish to support them with the application process.

Should you refer any client that may require an LEI to a discretionary investment firm (DIF), you should seek clarification from that DIF to ascertain their position on carrying out transactions in financial instruments that will require your client to hold an LEI. Again, you may wish to assist your client in the application process. In both the above scenarios you should consider the suitability of the recommendation of certain financial instruments based on the additional cost of holding an LEI (see section below). This requirement applies from 3 January 2018 onwards.

How to obtain an LEI?

An LEI can be obtained directly from the London Stock Exchange (LSE) for an initial fee of £115 plus VAT, with an annual renewal fee of £70 plus VAT. The LSE have issued a step by step guide on requesting an LEI which can be accessed on the London Stock Exchange website.
Location: St Nicholas Court, Church Ln, Dersingham, King's Lynn PE31 6GZ, UK

Comments

Post a Comment

Popular posts from this blog

STEP Affiliates

As a firm we are constantly trying to move forward with our standards and professional development. We have aspirations of obtaining Corporate Chartered Adviser’s status early next year and are also working to achieve accreditation from the Society of Later Life Advisers (SOLLA). Another professional accolade we have been working on is becoming Affiliate members of The Society of Trust & Estate Practitioners "STEP" and we are pleased to announce both Michael and Ben are now Affiliate members of STEP. "STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. We work to improve public understanding of the issues families face in this area and promote education and high professional standards among our members."
Post a Comment
Read more

Budget 2021 – Small Business Owners

The planned increases to Corporation Tax Rates and what these mean for small business owners. Who will be affected? The corporation tax ‘main rate’ (currently 19%) is scheduled to increase considerably to 25% by April 2023. A new ‘small profits rate’ is also being introduced for business which make less than £50,000 profit a year. The main rate will be applied to businesses making more than £250,000 profit a year, with a ‘tapering’ of the two rates between these amounts.  Those companies under this lower £50,000 threshold will find themselves relatively unaffected by the new measures.  Businesses which find themselves between these rates will arguably be affected worst, having smaller profits to pay the extra tax from. For these companies, particularly which find themselves just over each of the limits announced, or indeed the tapering limits yet to be confirmed; additional tax planning will become an essential exercise going forward. Fortunately, these same companies will hav...
Read more

An update on ISAs

Cash These ISAs are the simplest form, but unfortunately at present paying poor returns and in most cases not keeping pace with inflation. Enjoys Financial Services Compensation Scheme Protection up to £85,000 per provider. The ISA limit for 2017-18 is £20,000. Stocks and shares All or some of the annual ISA allowance can be invested in stocks and shares. This can be done directly in shares of companies or in bonds, or through funds or investment trusts, which are funds that are traded on the stock market. Investors can also use 'passive' investments, which are low cost and track different markets, such as the FTSE 100. The ISA limit for 2017-18 is £20,000. Junior Junior ISAs are for those under the age of 18. Up to £4,128 can be saved into these ISAs in the 2017-18 tax year. At age 18 this money is then converted into an adult ISA, and the child takes control (and can do what they want with the money). The money cannot be withdrawn until age 18, unless the child is te...
Read more