The Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) require every entity to have a Legal Entity Identifier to do financial transactions within the EU. Whether you are running a non-profit organization, a fund, or trust, having an LEI is mandatory according to the “No LEI No Trade” initiative that is being implemented by these authorities.
Even for entities that are not physically located in Europe, having an LEI code is a requirement if they are to do business with other legal entities operating within the EU.
Difference between MIFID and MiFIR
The Markets in Financial Instruments Directive (MiFID) sets the goals that member states in the EU should achieve within a given period. On the other hand, the role of the Markets in Financial Instruments Regulation (MiFIR) is to impose rules that all members of the EU should follow.
One of the regulations that MiFIR imposed on EU member states was that all their legal entities would have to obtain an LEI number before buying, selling, or issuing financial instruments on EU-regulated markets.
Why comply with the MiFID II & MiFIR LEI regulations?
- To avoid constraints during transactions: For any legal entity that wants to smoothly do business with other entities in Europe, acquiring an LEI number is a must. It doesn’t matter what kind of organization you are running, MiFID II & MiFIR’s “No LEI No Trade” initiative will halt you from successfully doing business if you have no active LEI code.
- To build trust within your organization’s stakeholders: Customers, business partners, and investors often find it easier to deal with entities that comply with regulations set by authorities both locally on internationally. Having a Legal Entity Identifier as required by the MiFID II & MiFIR makes it easier for your business to build relationships with potential clients, investors, and other business partners that your organization may need to thrive.
- You need a global identity: Your LEI code is globally recognized, so having one will make it easier for anyone across the world to verify the legitimacy of your entity before attempting to do business with you. An LEI code is considered as a live reference of your organization’s identity, with details of “who is who” and “who owns whom.”
- Your Legal Entity Identifier is used for KYC practices: Extensive vendor networks are already relying on Legal Entity Identifiers for KYC and B2B onboarding.
Read more about how LEI can improve your KYC in Improving KYC with LEI article.