SMSFs get reprieve for legal entity identifier compliance

Self-managed super funds with corporate trustees who wish to trade in Europe now have another six months to meet new market requirements, a recent announcement by the global regulator states.

As reported by Professional Planner in December, SMSFs will require a unique number called a legal entity identifier (LEI) to meet new Markets in Financial Instruments Directive (MiFID II) requirements in Europe. Up to 30,000 Australian SMSFs must meet the new rules, but the European Securities and Markets Authority (ESMA) has extended the deadline.

This new directive means SMSFs with corporate trustees can continue to trade with their European counterparts for another six months beyond the original January 3 deadline.

ESMA guidelines require financial entities to supply identification documents to obtain an LEI code. In a statement confirming the delay, ESMA stipulates that during the temporary arrangement, investment firms must obtain similar documentation from clients. The onus is also on the investment firm to use its own LEI codes when reporting transactions to the Financial Instruments Reference Data System (FIRDS).

Chris Donohoe, chief executive of APIR Systems, which has partnered with the London Stock Exchange to provide LEIs domestically, says the announcement is a welcome compromise that will make it easier for directors of companies operating as corporate trustees for SMSFs that trade and transact with European Union entities but haven’t yet managed to arrange an LEI.

“APIR welcomes the extension, as it enables the key Australian stakeholders to gain a better understanding of the impact and application of the regulations,” he says. “We see this as a good outcome for Australian investors and their advisers.”

In a statement released the day after ESMA’s announcement, Donohoe explained that the move was a necessary measure “to support the smooth introduction of the requirements”.

“ESMA’s statement acknowledged that it had received a number of indications that not all investment firms will succeed in obtaining LEI codes from all their clients ahead of 3 January 2018,” the statement read. “This is consistent [with] what we have witnessed here in Australia, where the impact of MiFID II is well understood by the institutional market but far less so by the domestic funds, in particular the advisers and trustees of SMSFs.”