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The UK’s financial regulator has extended the deadline for the reporting of Legal Entity Identifiers (LEI) by third-country issuers under UK Securities Financing Transactions Regulation (SFTR), due to come into effect this month, until at least 13 April 2022.
The move is designed to avoid market disruption after large gaps still remain in Legal Entity Identifier (LEI) coverage outside of the European Economic Area, the Financial Conduct Authority says. The deadline for such reporting to begin was due to be 13 April 2021.
Of the decision, the International Securities Lending Association (ISLA) says it hopes to see a similar stance from the European Securities and Markets Authority (ESMA) ahead of next week’s deadline for the EU’s SFTR.
Confirmation of the delay was also welcomed by Kaizen Reporting’s SFTR guru Jonathan Lee who predicted in a LinkedIn post that ESMA will follow suit.
The LEI requirement for third-country issuers was due to be rolled out along all other SFTR phase one and two requirements in April 2020 but was held back for a year after policymakers were presented with evidence detailing a significant lack of preparation to comply with the rule.
The lack of LEI coverage outside of the EEA would cut off a significant liquidity source for the financing market causing major volatility, the European Commission was warned at the time.
Although a 12-month grace period was granted by the commission in January 2020, recent evidence suggests there is yet to be significant improvement in LEI coverage in non-EEA jurisdictions.
The latest market survey of EU and non-EEA International Securities Identification Numbers (ISIN), conducted in February 2021, included members of ISLA, the International Capital Market Association (ICMA), the Association française des marchés financiers (AMAFI) and the Association for Financial Markets in Europe (AFME), in collaboration with IHS Markit.
The results were cross-referenced with several LEI-focused entities and found that of the 4,7570 unique ISINs identified, 37,207 (78.22 per cent) were missing LEIs, of which 98 per cent (36,505) were for ISINs issued in non-EEA countries.
In a joint letter addressed to UK and European national regulators and the EU’s market overseer on 9 March, ISLA, ICMA, AMAFI and AFME argued that: “Within margin lending and securities lending activity, for which collateral is reported at a portfolio-level, a single missing LEI in the collateral pool will result in the rejection of the entire submission”.
