Sigh of relief across Europe as ESMA grants reprieve on key MiFID II element

The European Securities and Markets Authority has given many EU investment firms, banks and other financial services businesses an early Christmas gift by granting them an extra six months to comply with a key rule having to do with the much-dreaded MiFID II regulations.

As reported, a package of major updates to the Markets in Financial Instruments Directive known as MiFID II is due to come into force on 3 January, even though reports and anecdotal evidence have suggested many companies across the bloc are far from ready.

The reprieve, which took the form of an announcement published today on ESMA’s website, has to do with a unique alphanumeric code known as a Legal Entity Identifier (LEI), which all market players are required to have.

In its announcement, ESMA noted that it and the various “national competent authorities”, or NCAs, which are working on overseeing the adoption of MiFID II, had “received a number of indications that not all investment firms will succeed in obtaining LEI codes from all their clients that are legal persons” ahead of the 3 January deadline.

“Similarly, ESMA and NCAs are aware of the concerns raised by some trading venues that additional  time might be required to reach out to non-EU issuers, whose financial instruments are traded on European trading venues, in order to inform them about the applicable MiFIR and MAR requirements
and obtain their LEI codes.”

In that context, and to support the smooth introduction of the LEI requirements, ESMA said it would  allow for a temporary grace period of six months, during which companies would be permitted to function without an LEI code in place.

Last week, the Financial Times reported that the banking industry in particular had been lobbying for more time because, they told the publication, as many as 20% of their clients did not yet have LEIs.

MiFID II has been some seven years in the making, and was originally due to come into force a year earlier than it now is. Even now, industry sources who are working to comply with the new rules say they keep coming up with what they believe are unintended consequences that appear likely to cause problems for them and others, even though they applaud the idea of the legislation, which was intended to increase consumer protection and increase competition in the provision of financial products and services across the European Union.

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