Reemt Seibel, an ESMA spokesman, said that “some sort of identifiers are required throughout the standards for reporting purposes", and often a different kind of identifier can be used. ESMA’s EMIR technical standards state that if a LEI is not available, the trade report should instead include a pre-LEI or, if one of those is not available, a business identifier code.
While ESMA has left the door open for other identifiers, the FCA has taken a stricter approach. FCA spokesman Chris Hamilton said: “The EMIR technical standards states that an LEI or pre-LEI should be used where available. These are available to obtain and so they are required by law.” He said the FCA has not mandated counterparties to stop trading with counterparties without an LEI. “Although as an LEI is required by law, we may have to take a harsher line where counterparties are not complying with the rules.”
PJ Di Giammarino, CEO of regulatory think tank JWG, said that the LEI requirement stood in a regulatory grey area. As a result, when coupled with the high cost of adoption and issuing backlogs at pre-LOUs, there hasn’t been a huge uptake. “Market participants need to know what the penalties are to make one decision or the other", he said. "The regulators need be very specific about wanting a single identifier. As it stands now the trade can continue and a variety of identifiers can be used.”
According to Di Giammarino, LEIs could cost big firms millions of euros. JWG estimates the average price across pre-LOUs for registering an entity for a LEI is about €133, on top of additional costs associated with its maintenance. But JWG believes external registration only accounts for 20 per cent of the internal cost. LEI costs also include integration, updates and data quality management. Firms that have hundreds of LEIs to register could see significant costs mount up. “There are plenty of things that are required under EMIR and a plethora of other regulations, so if you have limited budget you start looking to eliminate expenditure that is not expressly mandatory and with serious consequence", Di Giammarino said.
There are currently 215,562 pre-LEIs registered worldwide, of which 64,212 are in the US, 12,000 in the UK, 27,548 in Germany and 15,665 in France, according to LEI tracking service OpenLEIs. The number is significantly lower than industry expectations of around one million LEIs.
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See also: LEIs: First part of common data format published
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