Up to 17,000 SMSFs with corporate trustees will be allowed to trade with Europe past the April 1 deadline that would have restricted the practice, the securities regulator has confirmed.
SMSFs with corporate trustees will eventually require a unique number called a legal entity identifier (LEI) to meet new Markets in Financial Instruments Directive (MiFID II) requirements in Europe.
The domestic introduction of an LEI initially had a two-year notice period, which was extended by a six-month delay from the October last year to the start of April – in three weeks’ time.
The regulator has confirmed that the requirement for a legal entity identifier will be extended again, but it hasn’t specified the extension period.
A spokesperson for the Australian Securities and Investments Commission said it received two applications for relief from the rule. The applicants have requested anonymity.
“ASIC is significantly advanced in the related process and we anticipate that the related relief instrument should be published on the Federal Register of Legislative Instruments (FRLI) by this Thursday and effective from Friday,” the spokesperson told Professional Planner.
ASIC made it clear, however, that this latest delay will be much shorter than its last 6 month period.
“Whilst the detail of the relief will be public upon publication on FRLI, we emphasise that the relief will be only for a short period and conditional upon market participants and other Reporting Entities taking demonstrable steps to obtain LEIs for their counterparties,” the spokesperson noted.
According to Chris Donohoe, chief executive at APIR Systems, the delay is not entirely unanticipated.
“We are aware that at least one association is pushing ASIC to delay it on behalf of their clients,” Donohoe says. “Certainly (regarding) the volume of clients that they need to get across the line, some are a little bit nervous and would prefer to kick it down the road.”
A ‘reasonable quantum’
Donohoe says roughly 5 per cent of the 600,000 existing SMSFs – or 30,000 – must meet the new rules.
Approximately 13,000 identifiers have been released in the domestic market so far, Donohoe says, leaving a potential 17,000 SMSF trustees behind.
Advisers who should be most aware of the requirement, he explains, are ones with high-net-worth or “sophisticated, high net wealth” clients with a “reasonable quantum” to invest, who are more likely to partake in over-the-counter (OTC) trades with their European counterparts.
“They can be used for hedging, for example, so you’d need someone with a reasonable understanding to do that,” he says.
“There are some entities out there that do these trades regularly, and obviously it’s in their best interests to get the identifier,” Donohoe reveals. “There are SMSFs that might only do these trades every 6 months or so, and they might just grab their LEI code when they feel the need to transact.”
APIR Systems has partnered with the London Stock Exchange to provide LEIs domestically, and charges a fee of about $250 for each LEI registration that it processes.
“We do know from our conversations with ASIC that there is quite a large number still to be registered,” Donohoe says. “But what we’re seeing as the deadline approaches is a surge, as brokers and advisers communicate the urgency to their clients.”
The edict for company trustees to have a LEI code stems from MiFID II requirements in Europe.
‘MiFID II’ refers to the second iteration of the Markets in Financial Instruments Directive, which legislates the new identification system. The original MiFID framework has been in place since 2007 and has its roots in the GFC; as the G20 looked to strengthen accountability and tracking in the marketplace a 20-digit alphanumeric code was devised to bolster identification protocols.
The movement towards identifiers came from the US, but has been pushed further in Europe, particularly after the Global Legal Entity Identifier Foundation (GLEIF) was founded in Switzerland in 2014.
As per the GLEIF website, 1,378,804 LEIs have been issued worldwide. GLEIF does not directly issue LEIs, but delegates this responsibility to local operating units (LOU), of which APIR Systems is one domestic operator.
“We can turn one around in about five days,” Donohoe told Professional Planner in January. “We just need an ABN and proof of legitimacy. Once the data has been taken care of then we can provide the number.”
Despite the anticipated delay, Donohoe says trustees should be encouraged to arrange LEIs as soon as possible.
“It’s inevitable,” he says of the rule’s implementation. “ASIC has been very public in its desire to be as harmonised as possible with other jurisdictions.”