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The Legal Entity Identifier system currently has around 1.7 million LEI codes in its database. As much as 30% of these are lapsed. Having a Lapsed LEI can have serious consequences if your regulator or financial intermediary requires the LEI to be active.
A lapsed LEI can incur penalties such as blocked or delayed trades, financial penalties or fines.
In October 2020, The Commodity Futures Trading Commission announced that it has filed and settled charges against Morgan Stanley. The charges come after inaccurate swap reports, including failure to complete Legal Entity Identifier requirements amongst other infractions.
The CFTC fined Morgan Stanley to the tune of $5 Million USD. Upon further investigation, we noticed that Morgan Stanley Capital Services LLC actually had allowed their LEI to lapse between the years 2013 to 2018.
In 2017, CITI Bank was also fined by The CFTC due to Legal Entity Identifier failures. According to the CFTC Citi failed to report LEIs accurately for thousands of swaps and trades and fined CITI to the tune of half a million US Dollars.
The LEI is a requirement in many regulations across the world, and most regulations require the LEI to be active.
” If a legal entity fails to renew and re-certify its LEI registration by the ‘Next Renewal Date’ stated with its LEI reference data, then the registration status of this LEI will be set from ‘issued’ to ‘lapsed’.” – GLEIF
Legal entities who are behind with their LEI renewals risk losing business as counterparties may refuse to engage in business with an entity who has a lapsed LEI, and also face being sanctioned for non-compliance in accordance with LEI regulations.
Funds and trusts require the LEI since 2018 with the introduction of MIFID 2. LEIs under these entity types tend to lapse because the LEI may be needed to begin trading, or conduct a single transaction. It then may not be necessary to keep it active and they view the LEI as fulfilling a single use purpose.
This is also the case with medium to small sized companies. They may be asked to get an LEI by their investment service provider or manager in order to complete a specific trade. The LEI may just be a one time requirement here. If the needs arises for another transaction, they will surely renew their LEI or face a delay or blocked trade.
While some regulations may be relaxed on the renewal aspect of the LEI, ESMA confirmed that EU Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) both require market participants and investment firms must maintain have an active LEI by conducting annual LEI Renewals.
1. Purchase automatic annual renewals. This way the card will be automatically debited each year and the LEI automatically renewed. The caveat with this is to ensure that the card on file remains active and is not cancelled in the course of the year, as this would likely result in a failed payment and thus a Lapsed LEI.
2. Multi-Year LEIs: You can now purchase an LEI for up to 5 years. This comes at a discounted rate and guarantees that your LEI will be renewed annually for the next 5 years. This is the single best way to avoid an Lapsed LEI.
3. Working with a reliable and trusted partner such as LEI Worldwide will ensure you can maintain close contact with your LEI service provider, and avoid any lapses in communication ensuring your LEIs are maintained to the highest possible standards.
1. Risk of non-compliance – As mentioned above LEI renewal is a requirement under many legislations across the globe. By having a lapsed LEI you risk financial penalties, reputational damage and losing business.
2. LEI Record history is immutable – Should your LEI code inadvertently lapse, this will be permanently recorded in the history section of the GLEIF LEI database. Subsequently anybody viewing the LEI Code with interest will clearly be able to see that your LEI was allowed to expire, as is the case with Morgan Stanley.
In the case that your LEI has lapsed, not to worry, it can be re-activated relatively quickly. But move fast…
1. Simply click the renewal button on the home page or below.
2. Enter the details of the LAPSED LEI.
3. Proceed to checkout, choose one of the 3 renewal options.
4. Submit your application which will be reviewed by our registration team.
5. If this LEI was originally registered with another service provider it will need to be imported first.
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