ESMA delays LEI requirements under MiFID II

European regulator issues six-month grace period as it learns firms are unlikely to meet 3 January deadline.

Investment firms have been handed a temporary six-month grace period from MiFID II’s legal entity identifier (LEI) reporting requirements, less than two weeks before the regulation is to be implemented across Europe.

The European Securities Markets Authority (ESMA) confirmed the last-minute reprieve stating it would ensure a smoother introduction of the rules.

In recent weeks, ESMA said it had become aware that not all firms would be able to meet the 3 January deadline in obtaining LEI codes from their clients.

The ‘no LEI, no trade’ concept has been subject of debate ahead of MiFID II, with firms highlighting potential unintended consequences for those without an LEI.

The grace period means banks can provide investment firms with LEIs on behalf of investment firms, while trading venues can use their own LEIs for non-EU issuers that don’t currently have a code.  

The last-minute change has proved to be a problem for the Financial Conduct Authority (FCA) who explained in a statement that changes to its systems to reflect the delay to LEIs will not be completed by 3 January.

“As ESMA’s statement notes, this approach requires the FCA to temporarily amend a validation rule in our transaction reporting system, the Market Data Processor. We will do this as soon as possible, but that change will not be made by 3 January.”

The FCA added it will communicate further with executing firms and approved reporting mechanisms (ARMs) on the date it intends to make the change to the validation rule.

“Until then, executing firms should not seek to submit reports that would not normally pass that validation. We will have the facility to accept these reports when the validation rule change has been made,” the FCA said.

The challenges around obtaining LEIs under MiFID II, particularly in fixed income, were widely discussed among market participants at The TRADE’s Overcoming MiFID II Data Challenges event earlier this year.

A panellist highlighted at the time that around 90% of sovereign issue bonds and between 50-75% of all corporate bonds do not have an LEI.

“These are not insignificant numbers, and it is about the creation of [LEIs]. It is a massive implementation problem, and some people have to go out and create them, and clearly apply them to the fixed income world,” David Bullen, founder of Bullen Management, told delegates.