As we mentioned in our “MiFID II overview”, there are elements of MiFID II that the regulator still needs to provide clarification on. Nevertheless, we feel it is important to communicate our current understanding of certain key areas as soon as possible.

Transaction Reporting is one of the areas changing most under MiFID II, with forthcoming amendments and additions set to impact both front and back office practices. Just to place some scale on the changes, as it currently stands the number of reporting areas under Transaction Reporting will increase from 24 to 85 under MiFID II.

In this update we will be focusing on one aspect of the change: Transaction Reporting: ‘LEI’.

What is an LEI?An LEI is a unique identifier for legal entities or structures. These include Trusts, SSAS, Charities and Corporates. It is a 20 character, alpha – numeric code. The ability to obtain an LEI has been in existence for some time but only under MiFID II does it become a mandatory requirement. If an entity or structure does not have an LEI when MiFID II becomes enacted on 3rd January 2018 then no trading can occur on that entity.

Why is an LEI now a mandatory requirement?LEIs allow for consistent identification of parties undertaking financial transactions. This allows for improved measurement and monitoring of systematic and counterparty risks. LEIs will be included in a global data system, which will allow every legal entity or structure that is party to a relevant financial transaction to be identified, in any jurisdiction.

Financial instruments subject to MiFID II Transaction Reporting obligations which come into effect on 3 January 2018 include: shares, bonds, collective investment schemes and derivatives. Article 26 of MiFIR provides the conditions applicable to financial instruments.

A global LEI system has already been endorsed by the G20 and to aid global implementation, Local Operating Units (LOUs) have been formed, sponsored by their relevant local regulators, to assign and maintain LEIs. In the UK, the LOU is the London Stock Exchange (LSE).

Affected entities and structures

As of writing, our view is that SIPPs and Bare Trusts are the only entities or structures that do not have a requirement to obtain an LEI. Every other type of trust will have to obtain an LEI.

It is our current understanding that we will have to apply the LEIs of Offshore Bond providers to client accounts. We will be asking each Offshore Bond provider to provide us with their LEI.

SIPPs: It would appear that currently the guidance suggests that the authorities are looking through the SIPP structure to the direct beneficiaries. As such, there is not a requirement to obtain an LEI for each SIPP. However, we feel in the future there is a risk that this will be amended so within our systems changes we will be making provision for this occurrence in the future. But for now our current view is that no action is required for SIPPs.

Transaction Reporting: Part I: Legal Entity Identifiers (LEIs)

Transaction Reporting: Part I: Legal Entity Identifiers (LEIs)

What needs to be done?

We believe the following actions need to be taken:

Preparation

• Identify: Identify all entities and structures impacted by the LEI requirement. Please note, we will only be carrying out this process for entities and structures managed by Brooks Macdonald in our custody for our clients.

• Communicate: Ensure that those responsible for assessing “suitability” for these entities and structures, i.e. advisers, are aware of LEI requirements. This will involve:

- Our providing you with a list of your impacted clients.

- Our confirming whether you would like us to go through the process of obtaining an LEI for each client, or whether you would rather make alternative arrangements.

• Respond: If you make alternative arrangements it will be your responsibility to provide Brooks Macdonald with each entity or structure’s LEI code in advance of the 3 January 2018 deadline.

If you use one of our other services, such as our Multi-Asset Funds or MPS on platforms, then responsibility for obtaining an LEI falls on yourselves, the client or the platform itself. We would strongly recommend that you contact relevant platforms in regards to their stance on LEIs.

• Request: If you would like us to apply for entity or structures’ LEIs, we will write to the relevant clients to ask for permission to do so and explain why it is necessary. You will be able to view this letter before we distribute them to clients.

• Permit: Permission from the client is essential, as there is a cost associated with obtaining an LEI from the LSE. In addition, there may be a need to attain further mandatory information from the client in order to obtain their LEI(s).

As of writing, we expect any costs associated with obtaining and renewing LEIs to be debited directly from client portfolios.

Once client permission has been granted, we will apply for each entity or structure’s LEI. This will involve a three-stage process:

1. Search: We will check that no LEI exists for the entity or structure.

2. Obtain: We will then go through the process of requesting an LEI for that entity or structure.

3. Apply: Once the request is complete, including checks applied by the LSE, we will obtain the unique 20-digit LEI code for that entity or structure. This will then be stored on our systems and we will pass the code on to clients and their advisers.

Other informationRenewal of LEI’s

All LEIs have to be renewed on an annual basis. If the client has given us permission, we will automatically update LEIs annually and deduct any costs from their account.

Application packs

We are in the process of amending our applications packs to accommodate the need for an LEI. This will ensure that we capture all the required information for new entities and structures before the 3 January 2018 deadline. Subsequent to this deadline, obtaining an LEI will become part of our account opening process.

Cost

There are costs involved in obtaining and renewing LEIs. If LEI applications are made directly to the LSE, the initial cost is £115 + VAT and the annual renewal charge is £70 + VAT.

One of the advantages of being a Brooks Macdonald client is that we can use our scale to secure discount rates in certain situations. We are currently in the process of negotiating a reduced initial application cost for those who apply for an LEI before the 3 January 2018 deadline. However, this is not yet guaranteed and we are not clear whether any discount will be available beyond this date.

Please note, Brooks Macdonald does NOT plan on levying an additional charge for providing this service in relation to LEI applications and renewals. Any costs to clients will be charges applied by the LSE.

Next Steps

• We are currently in the final stages of testing all applicable scenarios for obtaining LEIs.

• We will then begin the LEI preparation process set out in this article.

What needs to be done?

Ensure that those responsible for assessing “suitability” for these entities and structures,

i.e. advisers, are aware of LEI requirements. This will involve:

• Our providing you with a list of your impacted clients.

• Our con�rming whether you would like us to go through the process of obtaining

an LEI for each client, or whether you would rather make alternative arrangements.

Identify all entities and structures impacted by the LEI requirement.

If you would like us to apply for entity or structures’ LEIs, we will write to the relevant

clients to ask for permission to do so and explain why it is necessary. You will be able

to view letters before we distribute them to clients

If you make alternative arrangements it will be your responsibility to provide

Brooks Macdonald with each entity or structure’s LEI code in advance of the

3 January 2018 deadline.

Permission from the client is essential, as there is a cost associated with obtaining an LEI

from the LSE. In addition, there may be a mandatory need to obtain further information

from clients.

As of writing, we expect any costs associated with obtaining and renewing LEIs to be

debited directly from client portfolios. Anticipated costs are discussed later in this document.

2. Obtain

We will then go through the process of requesting an LEI for that entity or

structure.

1. Search 3. Apply

Once the request is complete, including checks applied by the LSE, we will obtain

the unique 20-digit LEI code for that entity or structure. This will then be

stored on our systems and we will pass the code on to clients and their advisers.

We will check that no LEI exists for the entity or structure.

Once client permission has been granted, we will apply for each entity or structure’s LEI. This will involve a three-stage process:

Identify

Communicate

Respond

Request

Permit

Transaction Reporting: Part I: Legal Entity Identifiers (LEIs)What needs to be done?

Ensure that those responsible for assessing “suitability” for these entities and structures,

i.e. advisers, are aware of LEI requirements. This will involve:

• Our providing you with a list of your impacted clients.

• Our con�rming whether you would like us to go through the process of obtaining

an LEI for each client, or whether you would rather make alternative arrangements.

Identify all entities and structures impacted by the LEI requirement.

If you would like us to apply for entity or structures’ LEIs, we will write to the relevant

clients to ask for permission to do so and explain why it is necessary. You will be able

to view letters before we distribute them to clients

If you make alternative arrangements it will be your responsibility to provide

Brooks Macdonald with each entity or structure’s LEI code in advance of the

3 January 2018 deadline.

Permission from the client is essential, as there is a cost associated with obtaining an LEI

from the LSE. In addition, there may be a mandatory need to obtain further information

from clients.

As of writing, we expect any costs associated with obtaining and renewing LEIs to be

debited directly from client portfolios. Anticipated costs are discussed later in this document.

2. Obtain

We will then go through the process of requesting an LEI for that entity or

structure.

1. Search 3. Apply

Once the request is complete, including checks applied by the LSE, we will obtain

the unique 20-digit LEI code for that entity or structure. This will then be

stored on our systems and we will pass the code on to clients and their advisers.

We will check that no LEI exists for the entity or structure.

Once client permission has been granted, we will apply for each entity or structure’s LEI. This will involve a three-stage process:

Identify

Communicate

Respond

Request

Permit

Important Information

While the information in this article has been prepared carefully, Brooks Macdonald gives no warranty as to the accuracy or completeness of the

information. The information in this article does not constitute advice or a recommendation and you should not make any investment decisions on

the basis of it. If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move

independently of the underlying asset.

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