The Legal Entity Identifier (LEI) is a 20-digit, alpha-numeric code that enables clear and unique identification of legal entities participating in financial transactions and is needed by firms to fulfill reporting obligations under financial regulations and directives. A LEI code is assigned to a legal entity once off.
The LEI is already required under a number of EU regulations and directives including the following (according to ESMA):
- European Markets Infrastructure Regulation (EMIR) – counterparties to derivatives contracts as well as beneficiaries, brokers, CCPs and clearing members;
- Market Abuse Regulation (MAR) – issuers of financial instruments; entities involved or reporting in suspicious transactions;
- Capital Requirements Regulation (CRR) – credit and financial institutions;
- Alternative Investment Funds Directive (AIFMD) – funds and fund managers;
- Credit Rating Agencies Regulation (CRAR) – credit rating agencies and rated entities;
- Solvency II – pension funds and insurance companies;
- Central Securities Depositories Regulation (CSDR) – CSDs, CSDs’ participants;
- Transparency Directive – issuers of financial instruments listed on Regulated Markets;
- Securities Financing Transactions Regulation (SFTR) – parties involved in securities financing transactions and the beneficiaries of the rights and obligations arising from these;
- Prospectus Regulation – issuers of securities offered to the public or admitted to trading on a regulated market situated or operating within a EU member state; and
- Markets in Financial Instruments Directive II (MiFID II)/Markets in Financial Instruments Regulation (MiFIR)
Furthemore, according to ESMA, the Markets in Financial Instruments Regulation (MiFIR), introduces requirements for a number of various entities to be identified through the LEI such as investment firms that execute transactions in financial instruments;
clients (buyer, seller) on whose behalf the investment firm executes transactions when the client is a legal entity;
client of the firm on whose behalf the trading venue is reporting under MIFIR Article 26.5, when the client is a legal entity;
the person who makes the decision to acquire the financial instrument, when this
person is a legal entity e.g. this includes investment managers acting under a discretionary mandate on behalf of its underlying clients;
the firm transmitting the order;
the entity submitting a transaction report (i.e. trading venue, ARM, investment firm); and
the issuer of any financial instrument listed and/or traded on a trading venue.
Any legal entity can apply for LEI although it is not obliged to use a LEI issuer from its own country and can choose their preferred LEI issuer based on their own considerations.
The applying entity must submit a request to the issuer providing the relevant data and after submission is verified the legal entity must pay for the LEI code which will be issued.