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Posted 2 March 2017
by Leanne Yendell

Does your entity intend investing after January 2018? – Important Update



As evidenced by my last blog on the data protection changes due in 2018 (read here), we are keen to prepare our readers for future changes that may affect them. Prevention is better than cure, after all.   

Today’s blog is for the attention of any company, charity or trust (other than a bare trust, i.e. where the beneficiary has a right to both the capital and income) that intends investing in the UK financial markets from 2018. In short – your investment may be jeopardised if you do not obtain what’s known as a Legal Entity Identifier (LEI), a 20 digit alpha-numeric number which is unique to each legal entity.

On 3 January 2018, two sets of EU rules – the MiFID II directive (2014/65/EU) and the MiFIR regulation (2014/600/EU) – will come into force. MiFID II is said to be the ‘bigger and tougher’ brother of the current MiFID and will impose stricter transaction reporting requirements on applicable investment firms.

Under the new regime, greater emphasis will be placed on the importance of identifying individuals and entities involved in any financial market trades during the reporting process; that includes the trader, the client and any algorithm responsible for the investment decision and its execution. This will mean that any client who is classed as ‘eligible’ under the ISO 17442 must have an LEI.

This unique coding system enables every legal entity or structure that is party to a relevant financial transaction to be identified in any jurisdiction across the globe. As defined in ISO 17442, a ‘legal entity’ includes unique parties that are legally or financially responsible for the performance of financial transactions or have the legal right in their jurisdiction to enter independently into legal contracts, regardless of whether they are incorporated or constituted in some other way (e.g. trust, partnership, contractual). It excludes natural persons, although the LEI Regulatory Oversight Committee published a statement in September 2015 clarifying the conditions under which individuals acting in a business capacity are eligible to obtain LEIs.

Investment opportunities are essential to many organisations within the UK e.g. charity trustees are obliged to get the best return on their funds. Often, the day-to-day decision on investments is delegated by trustees to an investment management firm (IM), but this will NOT extinguish the requirement for you to apply for an LEI. Without this, the IM will not be able to act on your instruction. Although some IMs may offer to apply on an entity’s behalf, the ultimate responsibility of obtaining the LEI will fall on the entity itself. Be proactive, make enquiries and do not assume the IM will do it for you!

If you do need to apply, the London Stock Exchange, acting as England’s Local Operating Unit, will charge an initial allocation cost of £115 + VAT and an annual maintenance cost of £70 + VAT per LEI. If the LEI is not maintained annually, the LEI will become void. The steps to register can be found here

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About the author

Leanne Yendell

Paralegal

Paralegal in our Company and Commericial team at our Exeter office