On January 3rd, the Mifid II directive on financial instruments markets will enter into force in Europe.

Among other regulatory changes, this new EU regulation will oblige all legal entities (companies, associations, foundations…) that wish to operate in financial markets (through the issue or purchase of shares, fixed-income or equity transactions, OTC derivatives, structured financial liabilities,…) to have an LEI Code in force (Legal Entity Identifier) or Identificador de Entidad Jurídica, according to Royal Decree-Law 14/2013, of 29 November, on urgent measures for adapting Spanish law to the regulations on the supervision of the solvency of financial institutions.

The LEI Code is a unique global code based on the ISO 17442 standard, consists of 20 alphanumeric characters and has two functions:

1- To identify legal entities who are parties to financial transactions; and

2- To comply with the information requirements in the financial markets.

The objective of the LEI Code is to improve the assessment and management of systemic risk by providing a more precise and complete picture of the risks assumed by each participant in a financial transaction.

In addition to the identifying character of the LEI Code, a management system has been created around it. For this purpose, the following model is followed which is organized on three levels:

  • Regulatory Oversight Committee (ROC): made up of authorities representing the four identified regions (America, Asia-Pacific, Africa and Europe), is ultimately responsible for the LEI. Since its incorporation, Spain has been a full member of the ROC through the Bank of Spain (Banco de España).
  • Global Legal Entity Identifier Foundation (GLEIF): a non-profit foundation designated as the Central Operating Unit (COU) and entrusted with the task of managing the system under the supervision of the ROC. As such, it is responsible for ensuring the application of uniform operating standards, implementation and use of the LEI in line with agreed principles and for promoting its progressive adoption in the market.
  • Local Operating Units (LOU): public or private entities responsible for implementing the LEI at a local level, providing the identifier to entities that request it and acting as a record of the reference information that accompanies this code.

With regard to obtaining the LEI Code in Spain, the following particularities should be highlighted:

  • Its issuing and management in Spain is attributed to the Commercial Registry, constituting the Spanish LOU.
  • It is obtained by means of an electronic request addressed to the Ministry of Justice. Once the application number has been received, it must be signed by the legal representative of the applicant entity and submitted to the Commercial Registry together with proof of payment of the fees for issuing the LEI.
  • The Registrar should verify the validity of the reference data based on information available from different public sources. The Registrar also ensures that an active LEI code does not already exist and that there are no other applications in progress for the same entity. The qualification process has a maximum duration of 15 working days. Once the LEI code is assigned to the entity, the LEI certificate will be sent to the e-mail address of the contact person indicated in the request. From that moment, the LEI is activated.
  • The LEI code is valid for one year from the date of issue or the date of the last renewal. In addition, the entity will be obliged to request the renewal of the LEI code before its next renewal date and keep the associated data updated. The LEI status will change to “expired” if the entity does not renew it before the date set for the next renewal.

In the event that the legal representative of the entity is not the applicant of the LEI Code, the request in the interest of third parties is contemplated in the Resolution of 11th April 2017 of the Directorate General of Registries and Notaries (DGRN), which establishes the minimum data to be provided by the person making the request.

It is also worth noting the possibility of applying for or renewing the LEI in batches with the Spanish LOU. This request allows multiple requests to be made at one time for different legal entities.

The known consequences of not having the LEI Code, as an obliged entity, or not informing the investment services entity or credit institution through which the company operates of the code, will ultimately make it impossible to operate in the financial market.

 

 

Marc Martínez

Vilá Abogados

 

For more information, please contact:

va@vila.es

 

17th of November 2017