Legal information

Cross-border identification of legal entities in securities transactions

The use of the legal entity identifier is mandated by the European Commission’s Implementing Regulation (EU) No. 1247/2012 (2), which provides for the use of a unique and more universal code when dealing in OTC derivatives, central counterparties, and trade repositories. The central depositories’ own identifiers should only be used internally. When an entity reports and submits information to competent authorities, a generally accepted standard such as an LEI (equivalent to ISO standard 17442) should be used. This allows parties to securities transactions to be identified based on their LEI code, regardless of their contracting country.

Which implementing regulations mandate the use of an LEI code in the European Union?

European Commission Implementing Regulation (EU) No. 1247/2012 (2) provided that since OTC derivative contracts are usually neither uniquely identifiable by existing codes that are widely used in financial markets, such as the International Securities Identification Code (ISIN), nor described by the ISO classification of financial instruments (CFI ) code, a new and commonly used detection method had to be developed. On August 16, 2012, Regulation (EU) No. 648/2012 of the European Parliament and of the Council of July 4, 2012, on over-the-counter derivatives, central counterparties and trade repositories (“EMIR”) entered into force, which contained guidelines for the use of the LEI code to fulfill the EMIR reporting obligation. The greater need for the use of LEI codes arose from the directive 2014/65/EU (MIFID 2), which came into effect on January 3, 2018, and the directly applicable regulation (EU) No. 600/2014 (MIFIR, Article 26), which imposed the obligation of an LEI code on all companies registered in Europe that wanted to buy or sell securities listed on the stock exchange.