legal entity identifier (lei)
When does a fund need an LEI CODE?
If you are currently manging or operating within the compliance function of a Fund administration organisation or management company, you will more than likely be familiar with the LEI requirement by now. Funds are required to report a Legal Entity Identifier (LEI) under a litany of European, US, Australian, Asian and Global financial regulations.
In Europe alone, the LEI is required under Mifid II & AIFM in order to report on transactions using the guidelines provided by ESMA.
Legal entity identifier for funds
A fund is considered a Legal Entity and financial instrument which falls under the category of requiring an LEI. Regulatory requirements around fund administration and investment funds have been re-examined since the financial crisis a few years back. The EU and US have introduced a litany of new transparency driven regulations such as the US Dodd-Frank Act Title IV, and the European Union Directive on Alternative Investment Fund Managers (AIFM).
These aim to improve reporting practices and fund regulations, and ultimately transparency and visibility over the entire financial system. Luxembourg, a small country but being one of the largest fund administration centres in the world, has registered nearly 5% of the worlds LEIs in response to these regulations.
These regulations were introduced not only for funds, but also other capital market activities such as securities trading with regulations such as CSDR, SFTR & SRD II. LEI fund registration activity mostly falls under the European Mifid 2 regulation.
The one thing all of these regulations have in common, is that they all require participating legal entities to have an LEI code.
There are numerous types of funds and sub-funds, all of which can be considered a legal entity. So, in theory if you have an umbrella structured fund with many sub-funds (segregated or non-segregated) they would require LEIs each, not just the parent entity. Investment managers or brokers involved in any trading will also require an LEI.
This is why the LEI is so effective at mapping out the while financial ecosystem and gives us transparency the likes of which other identifiers have not been able to.
Once you have determined that your fund or reporting party requires an LEI you can proceed to the registration. Simply fill out the required data, and under 'Entity Form' select the option 'FUND'.
In summary, whether you are operating a self-managed fund, or it is being managed by a fund manager the fund and counterparty would need an LEI regardless.
Initially there was some grey area around the LEI requirement for fund structures, and different classes of funds, but it is expected that in the future all funds will require an LEI.
The Regulatory Oversight Committee (ROC) published their approval of of the use of LEIs and fund relationships in a publication which can be found here: https://www.leiroc.org/publications/gls/roc_20190520-1.pdf
The use of funds and sub-funds is an excellent way to diversify your investment portfolio. As such, you will want a separate LEI for each where the ultimate parent fund holds hierarchical data identifying which are primary child entities under their umbrella license (i e - "Fund X"). Investment managers as well as brokers require these licenses too!
The new EMIR regulation went live on 1st November 2020 and this means that we need to prepare for a few changes. One of the most notable ones is in how funds are validated, as well as assessing their relationship with other organizations within your company or organization structure - which could mean more work for you!
The good news though? All associated entity data will now come from just one common file format instead than dozen different ones so there's less burden when updating these files every year....
The LEI ROC (Regulatory Oversight Committee) just released new CDF Formats. RAMP has already implemented these changes in its management platform, which means that all of your information will be up to date as soon as possible.
These new changes mean that Funds will now be able to report their Fund structures in their LEI records. To find out more about the new GLEIF Fund reporting obligations please click here.
Most of the new data will be added to existing LEI at the point of annual LEI renewal, thus the GLEIF have appointed a period of one year to update the system with the new fields and requirements.
2022 - Updated LEI Policies for Funds, Investment Funds and Hedge Funds
LEI Guidelines have been updated with regards to reporting Funds and their structures. The Fund type will now be reported under the follwing There are three types of Funds:
- 1. A Managed Fund – This is a regular Fund (e.g UCITS) that is not considered a sub-fund or subsidiary of a fund.
- 2. A Sub-Fund of an Umbrella Fund - This entity type of fund relates to sub-funds that are part of an overall umbrella fund.
3. Feeder Fund, Umbrella Fund or a Master Fund - This entity type relates to funds which feed their investments through another vehicle of fund type.
The fund management relationships are also now required under policy in order to bring transparency around funds and their overall structures.
- Fund Management Entity: This the fund or entity that is the primary fund management company or ManCo as it is often referred. The ManCo may be a special fund management company, a law firm or it may be the fund itself if it is a self managed fund.
- Master Fund or Master Feeder: This is where the feeder fund is invested into another fund or multiple other funds. If a master fund exists it will need to be reported within the LEI. This is only required where the master fund is legally reported in the fund documentation (e.g prospectus).
- Umbrella Fund: An umbrella fund is a legal entity with multiple sub-funds where each sub-fund invests with different strategies. This can be investment into different asset classes, types of assets or companies. The Umbrella fund shall be reported with the registration of an LEI including its sub-funds or compartments.
- Start Date of the relationship between funds, sub-funds and master funds shall be reported within the LEI records.
- A Management Company (ManCo) to a fund must first obtain an LEI before the Fund obtains its LEI, unless this is a Self Managed Fund.