Trustees of UK trusts holding a UK managed investment portfolio will soon need to apply for a Legal Entity Identifier (LEI) number from the London Stock Exchange.
The EU legislation known as the Markets in Financial Instruments Directive (MiFID) affects firms who provide services to legal entity end users which involve financial instruments, such as shares, bonds and collective investments. Its latest incarnation, MiFID II, comes into effect on 3 January 2018. It places upon them new transaction reporting obligations, meaning that they cannot execute a trade in a financial instrument on behalf of any client for whom they do not have an LEI. The concept of the LEI has been endorsed by the G20 countries since 2011. It aims to provide a unique, alphanumeric identifier to any legal entity or structure, including companies, charities and trusts, enabling it to be identified in any jurisdiction in the world in which it operates financially. It is designed to enable verification of entities to take place quickly, wherever they are located, and to be the new, global standard in entity identification.
The London Stock Exchange has been authorised to issue LEI numbers in the UK. Trustees can apply for them online or allow their authorised representative (such as the trust’s investment manager) to apply on their behalf. Understandably, many financial intermediaries are offering assistance to their affected clients to help them complete the LEI application process in time.
If applied for directly, the LSE is charging a fee of £115 plus VAT to issue an LEI number and a fee of £70 plus VAT for each annual renewal thereafter, at which point the entity will be asked to provide updated information.
Only trusts holding financial investments will need an LEI number, but bare trusts are exempt in any event. As there is no publically available information to verify a trust’s credentials, it appears that the LSE will require sight of the first couple of pages of the trust deed as part of the application process.
A central database of all issued LEI numbers is held by the Global Legal Entity Identifier Foundation (GLEIF), a not-for-profit organisation created in 2014 to support the implementation and use of the LEI. The database is publically searchable and free to use. At the moment, the database displays only basic details such as the entity’s name, address and LEI number. However, the GLEIF states that ‘In a next step, the LEI data pool will be enhanced to include the ‘Level 2’ data that will answer the question of ‘who owns whom’’.
Will the LEI prove to be ‘the one ID number to rule them all’ and remove the need for trustees to keep providing KYC every time they embark on a new relationship with a financial institution? Only time with tell.