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EU gives banks more time to comply with trading rules

Rules known as MiFID II require parties to a transaction to have unique reference number

Grace period marks a further delay to EU’s efforts to introduce rules that have had to be postponed by a year already.

Wed Dec 20 2017 - 12:02

The European Union has given banks and their customers a further six months to comply with a requirement from January that all parties to a financial trade must have a unique reference number to help regulators spot abuses.

It marks a further delay to the EU’s efforts to introduce rules that have had to be postponed by a year already.

The new rules, known as MiFID II, come into force on January 3rd and require everyone involved in a transaction to have a “legal entity identifier” or LEI to submit trades to regulators.

Many customers of banks have yet to obtain one, which would make it impossible to execute a trade.

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The European Securities and Markets Authority (ESMA) said on Wednesday that banks could apply for an LEI on behalf of customers. Trading venues could also use their own LEI codes for non-EU issuers that currently don’t have one.

These measures will “support the smooth introduction of the LEI requirements... for a temporary period of six months”, ESMA said.

Britain’s Financial Conduct Authority, which regulates Europe’s biggest securities market, said it would reflect ESMA’s temporary changes in its own rules but this could not be done by January 3rd.

Until the FCA’s own rules have been amended, firms should not seek to submit trade reports that would not normally comply with the new MiFID requirement, the FCA said in a statement.

“We continue to expect firms to make every effort to secure a clients’ LEI before trading on their behalf,” the FCA said.

“Our analysis shows that trading with missing LEI is likely to represent a very small fraction of total trading volumes.”

Jake Green, a regulation lawyer at Ashurst, said ESMA’s announcement was a surprise last minute move and contrary to the FCA’s “no LEI, no trade mantra”.

“Many firms will actually find this of no help because they have built systems which will reject a trade where there is no LEI, or because they cannot suppress a truncation report until they eventually get such,” Green said.

MiFID II has already been postponed by a year but many smaller market participants have still found it too complex to comply in time.

Banks have complained that it has been difficult to get ready for MiFID II because regulators like ESMA have only just published some of the guidance needed to implement MiFID II.

Earlier this week, ESMA was forced to issue a statement to reassure market participants they can keep trading even though up to 19 EU states have not got round to putting parts of MiFID II into national law. - Reuters

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