Does your business need an LEI code?

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There are plenty of administrative things to remember when you are running or launching your own business.

One topic that has received a fair amount of media attention over the past year or so concerns the requirement to obtain an LEI code. As a rule that was only introduced in 2018, it is new enough to cause confusion. That inevitably leads to a certain amount of misinformation on the web.

Here, we cut through the rumour and hearsay to give you the lowdown on everything you need to know about LEI codes: What they are, who needs them and how to get one.

What is an LEI Code?

A Legal Entity Identifier is a unique 20-character alpha-numeric code for legal entities, companies, trusts and charities. It came into existence as a requirement of the European Union’s updated Markets in Financial Instruments Directive. Known as MiFID II, this came into force on 01 January 2018.

The relevant clause of the Directive states as follows: “In order to facilitate market surveillance, client identification should be consistent, unique and robust. Transaction reports should therefore include the full name and date of birth of clients that are natural persons and should identify clients that are legal entities by their LEIs.”

The objective behind the requirements is to make it easier to identify insider trading, market manipulation and other such practices. This will make the financial marketplace a safer and more transparent place for everyone.

Who needs an LEI?

Any company that intends to trade on the UK or EU financial markets must have an LEI Code. In the broadest sense, an LEI is necessary for any legal entity that undertakes financial transactions as part of its business activities.

LEIs are mandatory for all banks, investment companies, brokerages, insurance firms, trading companies, credit unions and other businesses providing financial products and services. Realistically, the broad definition within MiFID II means that just about any and every company could be required to have one.

How to get an LEI Code

The implication is clear – if you own or operate a business, you probably need an LEI Code. The good news is that it’s not complicated to obtain LEI and it can all be done online. All you need to do is complete a simple online form and send the necessary fee. If you do so during normal working hours, you will receive your unique LEI Code in a matter of minutes.

The LEI Code you receive is valid for one year. However, renewing it is a similarly simple matter. Again, it requires only a few minutes of your time and can all be done electronically.

What about individuals?

If you are a private individual buying, selling and trading financial products on your own behalf, the FCA has confirmed that you do not need an LEI number. You will just need to provide your agent, broker or financial service provider with your National Insurance number. LEI Codes are only required for legal entities, not for individuals.