ASIC’s Consultation Paper 334 proposes to update the ASIC Rules in respect of OTC derivative transaction reporting to require that a current, renewed Legal Entity Identifier (LEI) is the only allowable entity identifier for all eligible relevant entities. All LEIs used as entity identifiers will need to be duly renewed and remain valid at all times whereas this is not a current requirement under the Rules.
The ASIC Rules currently 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.
Proposed LEI changes in Consultation Paper 334
The table below is an overview of the current status and proposed changes:
| Types of counterparty | Types of identifier | Current rules | Proposed changes |
|---|---|---|---|
| Individuals | Client code | client code (assigned by the reporting counterparty) | client code (= reporting counterparty’s LEI + assigned extra characters as specified in the CDE Guidance) |
| Non-individuals | LEI |  |  |
| AVID |  |  | |
| BIC |  |  |
Popularity of LEI vs AVID
ASIC provided indicative data which shows that usage of LEI which is currently twice that of AVID.
| 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% |
Why has ASIC proposed this change?
ASIC intends to align as closely as practical with the rules of other jurisdictions (such as CFTC and EMIR) by adopting changes in the next version of proposed ASIC Rules for consultation. This is outlined on pages 96-99 of CP334.
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 you may wish to consider rolling out an LEI-only policy for all your non-individual clients in anticipation of the proposed changes being formalised by ASIC in Q3-4 2021 and implemented in late 2022.
What action do you need to take?
No immediate action is required at this stage unless you would like to give feedback to ASIC on this proposal. On 27 January 2021, ASIC drew particular attention to ESMA’s 17 December 2020 final report which discusses use of LEIs (section 4.2.4), and urged all stakeholders to take this into account in their feedback before the end of the consultation period.
| ASIC’s indicative consultation timelines for CP334 | |
|---|---|
| Consultation Round 1 | November 2020 to February 2021 |
| Consultation Round 2 | May 2021 to June 2021 |
| Rules made | Q3–Q4 2021 |
| Rules in-force | Q3–Q4 2022 |
If you have any questions, please do not hesitate to contact us.
