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The European Market Infrastructure Regulation (EMIR) and Legal Entity Identifiers (LEIs)

The EMIR regulation has mandated EU trade repositories, starting on 1 November 2017, to reject trade reports without a Legal Entity Identifier or LEI, regardless of whether the reports pertain to EU or non-EU market participants.

LEIs are mandatory for entity identification of both parties involved in derivative contracts whether financial or non-financial. Information should include the parties that enter, the beneficiary, the booking entity, and the clearing member.

Article 3 of the EMIR regulation No 1247/2012 titled, “Identification of counterparties and other entities” states:

  1. A report shall use a Legal Entity Identifier to identify
    1. A beneficiary is a legal entity
    2. A broking entity
    3. A CCP
    4. A clearing member
    5. A counterparty is a legal entity
    6. A submitting entity.

For customers and individuals who do not have a BIC or LEI, ESMA initially adopted the view that a client code, account number, or member ID would be sufficient but that has since changed in the publication of a consultation paper by the ESMA. On page 9 point 29 states:

“To avoid any misuse of Interim Entity Identifier, BIC, or Client codes, ESMA assessed the necessity of allowing all of those code types in all relevant fields. According to the assessment, in certain instances, a private individual could not be identified in a particular field and therefore it is proposed to delete the possibility of using a client code in that field. As LEIs, fulfilling the ROC principles and the ISO 17442 standard are already in place, there is no need to provide the possibility of using less robust identifiers like BICs or Interim Entity Identifiers any longer and therefore these are proposed to be deleted as well.”

It is now the viewpoint of the ESMA that only individuals should have the ability to use a client ID or account number as identifiers but any entities should use an LEI. It should be noted that individuals acting in a business capacity have the ability to register a Legal Entity Identifier, according to the LEI ROC.

It is also understood that the LEI needs to add a capability to identify branches under the same legal entity. For example, bank branches come under one legal entity but may require separate identification for cross-border resolution schemes. The LEI ROC has referred to these as “international branches” and has made some recommendations on the conditions in which an international branch would be able to obtain an LEI.

For more information on reporting obligations under EMIR, visit this page.

To purchase a Legal Entity Identifier for your organization, click here.