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June 27, 2018

Verena Ross, the ESMA Executive Director, spoke at the Banque De France Conference in Paris about the importance of Legal Entity Identifier (LEI) in the context of the second Markets in Financial Instruments Directive (MiFID II). She discussed the assessment of the implementation of LEI rules in Europe, particularly with a focus on the new requirements envisaged by MiFID II. Finally, she offered an overview of the priorities of ESMA in this area for the next year.

Ms. Ross explained how the rules around the LEI bring the key benefits to the European regulators and contribute to achieving the objectives of MIFID II. To this end, MiFID II introduces far-reaching LEI requirements. Concerns were expressed by market participants around the LEI and MiFID II implementation at the end of last year. With MiFID II having been in place for nearly six months, now is a good time to reflect on how things have gone and assess implementation. While some market participants were concerned that the requirements introduced by MiFID II would disrupt the markets, this is not what has been observed so far. It is hoped that this positive European experience will encourage other regulators across the globe to take steps to further mandate the LEI. The uptake in LEI issuance has been extraordinary, especially ahead of the MiFID II go-live. Overall, the total number of LEIs issued globally has doubled from 550,000 LEIs in August 2017 to 1,097,000 LEIs in February 2018. During the three months preceding the introduction of MiFID II, more than 100,000 LEIs were issued by month, while the average number of LEIs issued per month in 2016 was 5.600 LEIs.

With the end of the six-month period, activities of ESMA with respect to the LEI are shifting from pure monitoring to ongoing supervisory actions. ESMA is working with the national supervisors to identify the necessary measures to actively supervise compliance with the MiFID reporting rules. To ensure a high degree of supervisory convergence, the national supervisors have agreed to develop a common supervisory action plan focused on the LEI requirements. She also explained that many of the remaining issues around LEI compliance can be found in non-EU jurisdictions. ESMA has been actively engaging with market stakeholders and non-EU regulators to raise awareness about the EU requirements. Looking ahead to a few of ESMA’s priorities in this area for next year, she mentioned two important pieces of legislation, which are expected to go live in the summer of 2019: the Prospectus Regulation and the Securities and Financing Transactions Regulation (SFTR). From July 21, 2019, issuers will be required to include their LEI in prospectuses, the obligation applies regardless of whether the given issuer already has an LEI or not. Similar to MiFID II, the rules will apply to both EU and non-EU issuers. In addition, the SFTR will mandate the LEI code for parties involved in securities financing transactions and their beneficiaries. Overall, there are more than 20 fields where an LEI is required as entity identifier under the SFTR. This wide-spread use of LEI will also facilitate the EU and global aggregation of SFT data

Ms. Ross concluded that, while it requires some efforts at the beginning, the consistent use of the LEI across various EU requirements generates tangible benefits to the industry by reducing operational complexities, and, ultimately, decreasing compliance costs. Many stakeholders are calling for the LEI to be the standard pan-European identifier that can be used for all regulatory purposes. ESMA fully acknowledges that there is a need for both the industry and the regulators to build on the progress achieved so far to further enhance data harmonization through the LEI across the EU and beyond. ESMA also agrees that international data standards should always be prioritized over local or proprietary solutions to enhance data harmonization.

 

Related Link: Speech

Keywords: Europe, EU, Securities, MiFID II, LEI, SFTR, Prospectus Regulation, ESMA

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