Lies, LEIs and SFTR Reports

Tuesday 13 April should be crunch time for the removal of the 12-month waiver for the need to report issuer Legal Entity Identifiers (LEIs) for collateral or loaned securities issued outside the EU. However sometimes regulator desires are incompatible with the reporting realities. According to the study conducted by the joint trade associations (ISLA, ICMA, Amafi and AFME) and forming part of a joint letter to ESMA and national competent authorities (NCAs), there are at least 37,207 outstanding ISINs that don’t have issuer LEIs, of which 36,505 were issued outside the EU. This is prevalent in two of the world’s biggest securities markets, the USA and Japan…

Trade Associations request guidance

The trade associations have requested guidance from ESMA and NCAs about how to proceed, as the prospect of “No LEI, No Trade” really isn’t viable given the scale of the issue. It also reflects the fact that by merely being a holder of a security without an LEI as opposed to facing a counterparty without an LEI  gives you very little leverage to coerce the issuer into getting one.

The guidance requested by the trade associations focused on two options, either the use of a dummy LEI where none exists or maintain the status quo of leaving the LEI blank. We await feedback from ESMA and NCAs as to the preferred approach to take but would caution adopting any changes even at this late stage.

What is the best approach?

During trade association meetings trade repositories have shared that they have not yet been advised to prepare for any changes in the validation rules regarding either of the issuer LEI fields to date. In practical terms, this means that if you continue to report issuer LEIs only where they exist (you should have controls in place to ensure you always report them where they exist), then your reports will continue to be accepted into the trade repository, even where the LEI is blank.  Until we hear words to the contrary, this would seem the best approach with full disclosure in the spirit of the regulation and neither misreporting (such as dummy LEIs) or underreporting (omitting the securities completely).

• We are here to help if you have concerns about the quality of your SFTR reporting, with training, accuracy testing and advanced reconciliations available to ensure that you are compliant and remain so, as the regulation evolves. Please contact us to speak to Jonathan or one of our SFTR specialists about your challenges and how we can help.

• Jonathan is speaking on the issues above in “SFTR Implications” at the FOW Buy-Side Repo and Regulatory Forum at 11.50am GMT on 24 March. Registration is free for market participants. Find out more and register here.