The European Securities and Markets Authority has issued a statement to support the smooth advent of Legal Entity Identifiers (LEIs) in accordance with the European Union's Markets in Financial Instruments Regulation (MiFIR), giving firms a six-month period of grace to obtain and use LEIs. Compliance Matters talks to Dion Global about the delay.

Many investment firms and trading venues have been complaining to ESMA about such 'identifiers,' saying that they will not be able to obtain LEI codes from all their clients before the implementation date of 3 January. “No LEI, no trade” was one of things that worried them the most. Now, banks will be allowed to provide investment firms with LEIs on behalf of investment firms and trading venues will be allowed to use their own LEIs for non-EU issuers that do not yet have their own codes.  

Compliance Matters spoke to Steve Martin, a senior business consultant at Dion Global Solutions, about the six-month grace period. He warned: "Don’t think this is a blanket grace period, it’s not. It only relates to trading and transaction reporting of legal entity clients where they do not yet have an LEI. Even within this context ESMA is not saying that firms can trade without an identifier for six months and send a transaction report without identifiers. Firms will still need to transaction-report these trades and will still need an LEI to do so. While firms will be able to trade for legal entity clients (subject to strict conditions) who do not have an LEI, they will not be able to transaction report until they have obtained an LEI. The specific conditions are detailed by ESMA in its statement that says that 'before providing such service, the investment firms must obtain the necessary documentation from their clients to apply for an LEI code on their behalf. The investment firms will need to immediately apply for the issuance of the LEI on behalf of the client. Once the relevant LEI has been obtained, the investment firm should submit its transaction report.' So, it means that:

• the client must be a legal entity who does not yet have an LEI;
• the firm must have all the necessary documents to apply for an LEI;
• the firm must apply for the LEI immediately;
• the firm can then delay the transaction report until it has the LEI.

"The UK's Financial Conduct Authority is asking firms to delay their submission of transaction reports for clients who find themselves in this scenario until they have updated their software. This is because they have validation checks to ensure the date of issue of the LEI is before the trade date. For the six-month grace period this rule will be relaxed, i.e. the trade date can be before the date the LEI is issued."