From 21 October 2024, only LEIs can be used in ASIC’s derivative reporting. The final version of the rules have been released and require that a Legal Entity Identifier (LEI) is the only allowable entity identifier for all eligible relevant entities.
All LEIs used as entity identifiers for the reporting entity, counterparty 1 (and the central counterparty) will need to be duly renewed and remain valid at all times – this is not a current requirement under the Rules.
A renewed LEI is not required for the non-reporting entity, counterparty 2 in the transaction.
The current ASIC Rules which run until 21 October 2024 provide that, for other than an individual, an LEI is required to be reported but, if not available, an AVID (issued by AVOX Limited) or a Business Identifier Code (BIC) (issued by SWIFT) is a valid entity identifier. (see rule 2.1.1)
The current industry practice is that an LEI is reported as the entity identifier for reporting entities, brokers, CCPs, clearing members and trading platforms as financial services providers. However, for the non-reporting counterparties who are not financial services providers, an LEI is not always used as an identifier.
| Types of Counterparty | Types of Identifier | Current Rules until 21 October 2024 | New rules until 21 October 2024 |
|---|---|---|---|
| Individuals | Client code | client code (assigned by the reporting counterparty) | client code (=reporting counterparty's LEI + assigned extra characters as specified in the CDE Guidelines) |
| Non-individuals | LEI | ||
| AVID | |||
| BIC |
Why has ASIC implemented this change?
An aim of ASIC’s rule rewrites was to align as closely as practical with the rules of other jurisdictions (such as CFTC and EMIR).
LEIs are considered a crucial data element for the standardisation of identifying relevant entities in derivative transactions. They are an essential part of the global effort to achieve consistency to allow for global data aggregation.
What’s the impact on you?
For now, no internal process change is required. However, we recommend you implement an LEI-only policy for all your non-individual clients in anticipation of the changes commencing on 21 October 2024.
What action do you need to take?
Although not immediate, you should start planning for and implementing changes to your reporting for the clients that are still using AVID codes. This means transitioning to using LEIs, updating any internal systems required, communicating this change with your clients and requesting them to provide you with the necessary data so that they are reported correctly before the new rules go live.
Popularity of LEI vs AVID
ASIC provided the below indicative data in CP334, which showed that the usage of AVID codes was around 30% and although declining slowly, appeared to be relatively stable. We expect that as October 2024 approaches, these numbers will drop significantly as firms update their processes and communicate the new requirements to clients.
| Percentage of non-reporting counterparty entity identifier types in new transactions in the third week of the month (Extracted from CP334 page 97) | |||
|---|---|---|---|
| Identifier type | October 2019 | April 2020 | October 2020 |
| LEI | 59.7% | 63.8% | 64.5% |
| AVID | 32.7% | 30.2% | 29.6% |
If you have any questions, please do not hesitate to contact us.
