All "legal entities" which are party to financial transactions involving, amongst other things, shares, bonds, collective investment schemes and derivatives must obtain a legal entity identifier (LEI) by 3 January 2018; a unique code which is used to identify a legal entity that is a party to a financial transaction. This is due to new reporting requirements imposed on financial institutions and investment managers under the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II).
An LEI is designed to assist with transparency and the prevention of financial fraud in relation to financial transactions by allowing all parties participating in a transaction to be identified.
An occupational pension scheme may fall within the definition of ‘legal entity’ and so may need an LEI. Investment firms will not be able to provide investment services to a scheme that does not have an LEI (and should have one). For example, it will not be able to execute trades on behalf of the scheme from 3 January 2018.
Whether or not an occupational pension scheme needs an LEI will depend on the scheme's investments and trades. Trustees should therefore speak to their investment managers to establish if the scheme already has an LEI and, if not, whether they need one. Assuming an LEI is required, trustees could ask the investment managers to help them obtain one, particularly as investment managers can make bulk LEI applications at a discounted rate. Applications must be made using the London Stock Exchange's UnaVista platform and there is a fee of £115 plus VAT.
We anticipate significant numbers of legal entities needing an LEI and so the application should be made as soon as possible ahead of the 3 January 2018 deadline.
LEIs are only valid for a year and so will need to be renewed by pension schemes on an annual basis at a cost of £70 plus VAT per year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
