The Global Legal Entity Identifier Foundation, overseeing the LEI system, continuously works on enhancing the utility and adoption of LEIs across various sectors. Future initiatives may include integrating LEIs into digital identity solutions. This blog explores upcoming regulations surrounding LEI usage under various frameworks, including EMIR Refit in the European Union, the Digital Operational Resilience Act (“DORA“) in the EU, CHAPS in the UK, and directives from the Reserve Bank of India (“RBI“), and The Australian Securities and Investments Commission (“ASIC“) in Australia.
EMIR refit: Enhancing transparency in the EU
The European Market Infrastructure Regulation (“EMIR”), introduced in 2012 (Regulation (EU) No 648/2012), is a key regulatory framework established by the European Union to increase transparency and reduce the risks associated with the over-the-counter (“OTC”) derivatives market. EMIR aims to mitigate systemic risk, improve market efficiency, and protect against market abuse. The regulation imposes several obligations on entities dealing with derivatives, including clearing, reporting, and risk mitigation requirements. EMIR Refit (Regulation (EU) 2019/834), effective from April 24, 2024, introduces several amendments to streamline the regulation and reduce compliance burdens for smaller entities while maintaining its core objectives.
A crucial update under EMIR Refit is that all entities involved in reportable derivatives transactions must obtain an LEI. This requirement extends to both financial counterparties (FCs) and non-financial counterparties (“NFCs“). The LEI must be included in transaction reports submitted to trade repositories, ensuring that each counterparty is uniquely and unambiguously identified.
Digital Operational Resilience Act 2025: Strengthening digital resilience in the EU
DORA is a significant piece of legislation adopted by the European Union to strengthen the IT security of financial entities and ensure their operational resilience. DORA aims to create a unified framework for managing and mitigating digital risks within the financial sector.
DORA incorporates LEI to fortify the operational resilience of financial entities, particularly concerning ICT third-party risk. Under DORA, both financial entities (“Fes”) and ICT third-party service providers (“TPPs”) are required to maintain a valid LEI. This requirement aims to enhance supervisory capabilities, allowing authorities to trace service dependencies and manage associated risks effectively across jurisdictions, thereby promoting a more resilient digital infrastructure within the financial sector.
*The templates included in the draft ITS aim to identify unambiguously and consistently the ICT third-party service providers, and the FEs, by using the LEI, to enable an efficient aggregation of relevant information" (DORA LEI_JC_2023_85 - Final report on draft ITS on Register of Information, p. 6).
Bank of England CHAPS and RTGS Migration to ISO 20022 in the UK
Clearing House Automated Payment System (“CHAPS“) is a high-value payment system in the United Kingdom, operated by the Bank of England. It facilitates same-day electronic transfers of funds between participating financial institutions and is primarily used for large-value and time-critical payments.
The migration of CHAPS to the ISO 20022 messaging standard includes the integration of LEIs in payment messages, mandated by the Bank of England starting November 2024. This change aims to enrich payment data and enhance global interoperability, making LEIs pivotal in risk management and compliance processes within the UK's financial system.
RBI’s Approach to LEI in India
The RBI has implemented LEI mandates for participants in the OTC derivative markets and large corporate borrowers. This initiative is part of a broader strategy to enhance counterparty risk management and promote financial stability, illustrating the RBI's commitment to leveraging global standards to ensure greater transparency and control within India's financial sector.
ASIC Derivative Transaction Rules Australia 2024
The LEI has been a preferred identifier of ASIC since 2013, when they first introduced the ASIC Derivative Transaction (Reporting) Rules. In these rules, counterparties to OTC derivatives are mandated to use an LEI identifier.
From October 21 2024, all Risk Management Facility clients who partake in OTC derivatives will require a LEI code to trade and comply with ASIC Derivative Transaction Rules (Reporting) 2024.
This change applies to all Australian financial institutions, not just Rabobank, aligning with global initiatives that will help strengthen financial regulation in Australia.
Conclusion
The implementation of LEI regulations across various jurisdictions represents a significant move towards a more transparent and risk-aware global financial environment. Whether under EMIR Refit, DORA, CHAPS, or RBI directives, the LEI is proving to be an essential tool in the global effort to enhance financial transparency and reduce systemic risks.
As these regulations come into force, compliance with LEI mandates will be crucial for institutions to meet regulatory expectations and benefit from enhanced data quality and transparency in financial transactions.
How can we help?
We are committed to delivering the highest standards of compliance and operational excellence to our clients. Our partnership with LEI Worldwide, a leading provider LEI services, is a testament to this commitment.
By leveraging LEI Worldwide’s state-of-the-art, cloud-based, API-powered solutions, we have streamlined the process of obtaining, managing, and distributing LEIs across our global client base. This partnership ensures that our clients benefit from the most efficient and reliable LEI management services available, enhancing their compliance and operational capabilities in various trading markets.
We invite you to learn more about how our collaboration with LEI Worldwide can benefit your business. For detailed information or to discuss your specific needs, please get in touch with our team. We look forward to assisting you in achieving your compliance goals and supporting your growth.
