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Australian entities not exempt from MiFID II

By Tim Stewart
 — 1 minute read

Local wealth management entities that use European counterparties to execute trades will be captured under the new MiFID II regulations, which came into force on Wednesday.

Australian wealth management firms, including SMSFs, will be required to hold 20-digit Legal Entity Identifier (LEI) codes in order to execute trades via European counterparties under MiFID II.

The revamped Markets in Financial Instruments Directive, known as MiFID II, was officially launched on 3 January 2018 across the eurozone. 


The new regime has been designed to increase the transparency of European financial transactions, with all counterparties to be identified by a unique LEI code.

This has seen a spike in applications for LEIs by Australian entities, many of them SMSFs, that use European counterparties to execute trades.

However, Australian entities received a six-month reprieve after the European Securities and Markets Authority announced on 20 December 2017 that European trading venues would be able to report their own LEIs on behalf of “non-EU issuers currently not having their own LEI codes”.

LEIs are currently granted in Australia by APIR Systems, which is a registration agent of the London Stock Exchange and has been endorsed by the Financial Services Council.

Speaking to InvestorDaily, APIR chief executive Chris Donohue said his firm tripled the amount of LEIs it issued in the past year – with the bulk of those in the past three months.

While institutional investors are well prepared for MiFID II, many individual trustees – such as SMSF trustees and their advisers – may not have been aware that their brokers were Europe-based, Mr Donohue said.

“Suddenly as an issuer of these LEIs, we were getting calls from all sorts of different people who didn't know anything about LEIs and didn't know anything about MiFID II,” he said.

Australian platform providers are also well prepared, with “the bulk” of them having LEIs already, Mr Donohue said.

However, there is debate about whether platforms – which house multiple investment products – will be able to meet their MiFID II obligations with a single LEI.

Australian-domiciled fund managers will need LEIs if they deal in international equities and bonds, Mr Donohue added.

“There are question marks about whether your typical Australian share fund requires one. It could be required if they enter into some hedging or derivatives trade,” he said.

Rather than risking not being able to trade under the MiFID II regime, many fund managers are simply going ahead and acquiring an LEI, Mr Donohue said.

He pointed out that the launch of MiFID II in Europe means that Australia is now “out of kilter” with financial transaction reporting rules in the EU and the US.

“The [current] ASIC regulations do not go as far as MIFiD II does. There is potential for that to be revisited now that ASIC's starting to get an understanding of the reality that Australian entities are impacted by European regulations,” Mr Donohue said.

“Local entities, despite what the ASIC regulations say, can be impacted. Local institutions don't want to be caught out if they're unable to execute when they want to because they're missing one of these LEIs.”

Australian entities not exempt from MiFID II

Local wealth management entities that use European counterparties to execute trades will be captured under the new MiFID II regulations, which came into force on Wednesday.

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