How does the Legal Entity Identifier (LEI) affect Trusts?

The Global Legal Entity Identity Foundation has developed a system where every ‘legal entity’ is requested to register and acquire a unique identification number – a Legal Entity Identifier (LEI) - before it can trade on financial markets. It seems that Trusts were not carefully taken into consideration, though.

The Financial Stability Board is a powerful body set up by the G20 after the appearance of the global financial crisis and is drawn largely from central bankers. One of the matters it has been dealing with is the efficient monitoring of counterparty risk within the financial markets. In a process most bureaucrats will acknowledge, the Financial Stability Board (FSB) therefore created the Regulatory Oversight Group (ROC), which recognised that the world needed better identification of the legal entities, and in turn it developed the Global Legal Entity Identity Foundation (GLEIF) based in Switzerland.

The GLEIF has developed a system where every ‘legal entity’ is requested to register and acquire a unique identification number – a Legal Entity Identifier (LEI) - before it can trade on financial markets. In legal entities trusts are apparently included as well.

Obtaining an LEI involves a fee and it requires annual renewal, but the challenge is that the body which issues the LEI will need to validate the details of everyone it issues an LEI to against diverse public sources. In the case that it can’t validate the details, then it won’t issue an LEI, and the entity can’t trade in financial markets, even when it’s acting through a third party, as for instance a fund manager or broker.

It generally works for corporate entities but trusts mostly do not have publicly available information with which their application for an LEI can be validated. Hence, with the current plan, trusts could not be able to get an LEI.

LEIs are already being issued but the new regulations will come into effect in January 2017, and only after that date an LEI will be required by all the investors in financial markets. We nevertheless seem to be heading towards a situation in which, apparently by error, trusts – one of the most common ways of holding family wealth in the common-law world – are left locked out of participation in financial markets.

Some might call this a bit clumsy, but let’s hope that in the coming months some common sense can be brought into the process to alter this, presumably, accidental situation.


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