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

The EMIR regulation has mandated EU trade repositories, starting 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
2. A beneficiary which is a legal entity
3. A broking entity
4. A CCP
5. A clearing member
6. A counterparty which is a legal entity
7. A submitting entity.

For customers and individuals who do not have a BIC or LEI, ESMA initially believed 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 those code types in all relevant fields. According to the assessment, a private individual could not be identified in certain instances in a particular field. Therefore, the possibility of using a client code in that field is proposed to be deleted. 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.”

The ESMA now views that only individuals can use a client ID or account number as an identifier, but any entity should use an LEI. According to the LEI ROC, individuals acting in a business capacity can register as Legal Entity Identifiers.

It is also understood that the LEI needs to add a capability to identify branches under the same legal entity. For example, bank branches part of one legal entity may require separate identification for cross-border resolution schemes. The LEI ROC has referred to these as “international branches” and has recommended how an international branch could obtain a LEI.

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

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