Investment firms yesterday had a weight lifted from their shoulders, as a European regulator gave them extra time to comply with new rules.
The second Markets in Financial Instruments Directive (Mifid II), which is due to come into force in January, requires that every party to a trade has a unique number known as a Legal Entity Identifier (LEI). This was designed to increase transparency.
But the European Securities and Markets Authority (Esma) has been pressured by banks saying that many of their clients do not yet have LEIs.
Esma granted the industry a six-month repreive, saying that in the meantime banks could apply on behalf of clients and trading venues could fill in blanks with their own LEI.
The UK’s Financial Conduct Authority (FCA) supported the announcement, saying it recognised the need “for a smooth introduction to the new regime”.
But Jake Green, of law firm Ashurst, said this went “against the FCA’s repeated mantra of ‘no LEI, no trade’”.
“Many firms will actually find this of no help because they have built systems which will reject a trade where there is no LEI,” he added.
The FCA said it would not be able to amend its own systems before 3 January, when Mifid II is due to come into force, but it would do so as soon as possible.
It added that trades where an LEI was missing were likely to make up “a very small fraction of total trading volumes”, and that “we continue to expect firms to make every effort to secure a client’s LEI before trading on their behalf”.
Mifid II, which is one of the most fundamental shake-ups of financial markets in recent years, has already been delayed by a year due to confusion among market players.