On 12 July 2022, the European Securities and Markets Authority (ESMA) issued a statement on the implementation of Legal Entity Identifier (LEI) requirements for third country issuers under the Securities Financing Transactions Regulation (SFTR) reporting regime.
Key points in the statement include:
- The ESMA acknowledges the potential reporting implementation issue with respect to securities financing transactions (SFTs) entered into by EU investors for securities of third-country issuers. In particular, in third-country jurisdictions LEIs are not widely mandated beyond dealers of derivatives, therefore a significant number of issuers still do not have an LEI.
- The ESMA nor Member State competent authorities (NCAs) possess any formal power to dis-apply a directly applicable EU legal text.
- The ESMA expects that counterparties, as well as the other entities participating in SFTs, such as agent lenders and tri-party agents that lend, borrow or use as collateral securities issued by third-country entities that do not have an LEI, liaise with those issuers with a view to ensuring that they are aware of the requirements under the SFTR.
- The ESMA invites the entities which take part in SFTs reportable under the SFTR to make use of the relevant solutions put in place by GLEIF to facilitate LEI coverage such as the use of LEI validation agents.
- The ESMA maintains its position regarding third-country issuer LEI reporting included in its statements published on 6 January 2014 and on 13 April 2015. The ESMA, therefore, expects that trade repositories would not reject SFT reports of securities without a third-country issuer LEI which are lent, borrowed or provided as collateral in an SFT.
- The aforementioned position regarding the validation rules is only relevant to the LEI of third-country issuers. It does not, in any way, affect the mandatory reporting of the LEI in all other cases where it is prescribed by the regulation, including the identification of third-country entities taking part in a SFT.
- The ESMA expects NCAs to continue not prioritising their supervisory actions in relation to reporting of LEIs of third-country issuers.
- The ESMA will give advance notice of at least six months to market participants regarding its position on the reporting of LEI for third-country issuers ahead of the date of application of this requirement in the SFTR validation rules.