Just when we thought it could not get any worse in terms of client identification under MiFID II and MiFIR, the EU Directive and Regulation for markets in financial instruments, it seemingly has!

We have known for some time of the very onerous requirement for all legal entities to obtain and pay for a Legal Entity Identifier (LEI) before they are permitted to trade. An LEI will be a mandatory field in a transaction report which must be submitted by investment firms in respect of every relevant reportable financial transaction. WMA continues to work with the London Stock Exchange, the issuer of LEIs in the UK, to try and make the process as efficient as possible. For example, we work together to try to minimise the very real likelihood of many hundreds of thousands of applications for LEIs by or on behalf of entities such as small family trusts shortly before the “go-live” date for MiFID II and MiFIR. We are also engaging with the FCA to help raise the profile of this issue with trusts, charities and other small entities and make clear that this requirement clearly emanates from the European legislation.

What we did not know until the European Securities and Markets Authority (ESMA) published its consultation paper on 23 December 2015, which sets out its guidelines for transaction reporting, was that investment firms must obtain the first name and surname of natural persons from the person’s passport. Worse than that if the passport is not available, the representation on an identity card shall be used. Not easy in the UK where we do not have ID cards!

In our response to ESMA – the deadline for comments was today (Wednesday, 23 March 2016) – we have emphasised that regulated firms have, for many years, undertaken checks to ensure they have verified the identity of a client to meet their money laundering obligations.

So why have ESMA’s draft guidelines not recognised the existing obligations placed upon firms to identify their client? It is illogical to set out different prescriptive guidelines which are impractical and exceedingly difficult and costly to implement for transaction reporting. If firms have met their obligations under the money laundering obligations to identify the client then this should be an acceptable standard for the purposes of transaction reporting. Do the UK authorities really want millions of passports moving around the country?

We strongly recommend that the guidelines be amended so that it is an acceptable check that the client’s name has been verified in accordance with the firm’s money laundering obligations. Surely the European regulators will see sense won’t they? If not, execution-only (both online and telephone) sharedealing just will not work going forward.

Andy Thompson
Director of Operational Policy and Research, Wealth Management Association


– See also Investment Week’s article ‘Passport ID requirement ‘illogical’ addition to MiFID II‘ quoting Andy Thomson on this issue.