Legal Entity Identifier LEI – Required for security transactions


Legal Entity Identifier LEI – Required for security transactions

Thursday, 29 June, 2017

LEIs were introduced following the global financial crisis of 2008. The financial crisis has exposed weaknesses in the transparency of financial markets. Strengthening transparency is one of the shared principles to strengthen the financial system as confirmed by the G20 Leaders’ statement in London in April 2009.

The Legal Entity Identifier (LEI) is a globally unique reference number to identify all legally independent entities worldwide. The LEI is already actively used in many areas such as the reporting of derivative transactions. As of January 3, 2018 the LEI shall be obligatory for all security transaction under the Regulation (EU) No 600/2014 on Markets in Financial Instruments (MiFIR).

The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code, to uniquely identify legally distinct entities that engage in financial transactions. When an LEI code is allocated to an entity, the code is included in a global data system. This enables every legal entity or structure that is a party to a relevant financial transaction to be identified in any jurisdiction.

According to Article 26 of the MiFIR, the LEI refers to all reportable financial transactions. The obligation applies to (i) financial instruments, which are admitted to trading or which are traded on a trading venue or for which a request for admission to trading has been made, (ii) financial instruments derivated from a financial instrument traded on a trading venue and (iii) financial instruments derivated from an index or a basket composed of financial instruments traded on a trading venue. The obligation applies to transactions regarding all kinds of financial instruments, such as bonds, stock or derivates irrespective of whether or not such transactions are carried out on an official trading venue or on the third market.

Thus, investment service providers who are subject to the transaction reporting obligations and EU based branches of third country firms need to ensure that their clients which are eligible for an LEI will apply for- and obtain such LEI before executing any financial transaction. In the absence of an LEI, the reportable transactions cannot be executed. Therefore, all legal entities considering to conduct financial transactions are encouraged to apply for a LEI as soon as possible in 2018.

LEI's are available to all legal entities, which including all entities that have the legal right in their jurisdiction to enter independently into legal contracts regardless of how they are constituted. This includes governmental bodies, supranationals, companies, unincorporated institutions, trusts and it is worth noting that there is no charitable exception. Natural persons are excluded and do not need to obtain a LEI.

LEIs are issued by "Local Operating Units" (LOUs) of the Global LEI System. The combined list of LOUs endorsed by the Regulatory Oversight Committee (ROC) and of LOUs accredited by the Global LEI Foundation, can be found on the GLEIF website: European biggest LOU is the WM Datenservice in Germany. In Austria, the Oesterreichische Kontrollbank Aktiengesellschaft is available as a local service partner of WM Datenservice. The procedure for Austrian legal entities is as follows: The Austrian legal entity applies for a LEI in Germany (at the WM Datenservice), the Oesterreichische Kontrollbank Aktiengesellschaft is then analyzing such application for a LEI of the Austrian legal entity and the WM Datenservice issues the LEI to the Austrian legal entity.

Applications can be made online via the WM Datenservice platform. The LEI is valid for one year. Companies which use an LEI must update their reference data every year and transmit these to the LOU. Currently, the fees for an initial allocation amount to € 100 plus VAT and the annual maintenance cost amounts to € 80 plus VAT.

We highly recommend all legal entities concerned to apply for an LEI in due time. We are pleased to assist you with the application and are available for all questions regarding this issue.