12 July 2022

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, issues a third statement on the implementation of Legal Entity Identifier (LEI) requirements for third-country issuers under the Securities Financing Transactions Regulation (SFTR) reporting regime.

ESMA acknowledges the potential reporting implementation issue with respect to securities financing transactions (SFTs) entered into by EU investors for securities of third-country issuers. In particular, in third-country jurisdictions LEIs are not widely mandated beyond dealers of derivatives, therefore a significant number of issuers still do not have an LEI.

Neither ESMA nor national competent authorities (NCAs) possess any formal power to dis-apply a directly applicable EU legal text. Therefore, any change to the application of the EU rules would need to be implemented through EU legislation.

ESMA expects that counterparties, as well as the other entities participating in SFTs, such as agent lenders and tri-party agents that lend, borrow or use as collateral securities issued by third-country entities that do not have an LEI, liaise with those issuers with a view to ensuring that they are aware of the requirements under SFTR. This would further facilitate the use of their securities by the counterparties subject to SFTR reporting requirements. ESMA invites the entities which take part in SFTs reportable under SFTR to make use of the relevant solutions put in place by GLEIF to facilitate LEI coverage such as the use of LEI validation agents.

ESMA maintains its position regarding third-country issuer LEI reporting included in the ESMA statements published on 6 January 2014 and on 13 April 2015. ESMA, therefore, expects that trade repositories would not reject SFT reports of securities without a third-country issuer LEI which are lent, borrowed or provided as collateral in an SFT.

The aforementioned position regarding the validation rules is only relevant to the LEI of third-country issuers. It does not, in any way, affect the mandatory reporting of the LEI in all other cases where it is prescribed by the regulation, including the identification of third-country entities taking part in a SFT.

ESMA expects NCAs to continue not prioritising their supervisory actions in relation to reporting of LEIs of third-country issuers.

ESMA and the NCAs will continue to closely monitor (i) the evolution of the issuance of LEI for third-country issuers, (ii) the population of the field “LEI of the issuer” for third-country entities, as well as (iii) the structural evolution of the SFT markets in the EU, in order to assess on an on-going basis the developments regarding the use of LEI of third-country issuers.

ESMA will give advance notice of at least six months to market participants regarding its position on the reporting of LEI for third-country issuers ahead of the date of application of this requirement in the SFTR validation rules.

ESMA issues this Public Statement to ensure coordinated supervisory actions are taken in response to the aforementioned difficulty in the SFTR application, in particular the requirements regarding third-country issuer LEI reporting.