Gareth James sheds some light on a new contender for the award for ‘under-the-radar rules that are likely to bite the unprepared’ – the regulations covering the Legal Entity Identifier.
In recent years we have seen a series of regulations introduced that initially attracted little attention but – once the details became clear – were in some cases recognised as unworkable, in others convoluted or, at worst, both.
Among the unworkable regulations are the reporting requirements that surround the money purchase annual allowance (MPAA). Rules that rely on pension scheme members who make a contribution to a pension remembering they need to tell their provider they are subject to a reduced annual allowance are never going to work as intended.
The contribution might be made years after the saver was told they were subject to the MPAA. In the real world, rather than the rule-makers’ world, savers just aren’t going to remember they are legally obliged to pass this information on.
On the convoluted side, various sets of international tax information reporting rules – the Foreign Account Tax Compliance Act and the Common Reporting Standard – have been introduced.
These now require many savers to disclose a much greater amount of personal information than had previously been the case, just to open a broking account. And for those trying to open dealing accounts on behalf of entities such as companies, trusts or charities – good luck working your way through terminology such as ‘Passive Non-Financial Foreign Entity’ or ‘Owner-Documented Foreign Financial Institution’ …
The new contender for the award for ‘under-the-radar rules that are likely to bite the unprepared’ goes to the regulations covering the Legal Entity Identifier (LEI).
Deceptively simple
The requirements sound deceptively simple. Certain parties will be required to obtain a unique code that, from early January 2018, they will need to supply to brokers in order to carry out financial transactions on major stockmarkets. The aim of the rules is to allow the decisionmaker in relation to trades to be identifiable in case there is any link to market abuse.
Individuals will not have to obtain an LEI themselves – although firms providing discretionary services on behalf of individuals will need to – an issue lots of adviser firms will have to consider. Entities, for example trusts, will typically need to obtain an LEI, although trust-based SIPPs where the underlying client can be identified and is known to the investment firm will be exempt.
A number of questions immediately arise:
* Are adviser firms that offer discretionary services to clients yet aware they need to obtain an LEI?
* How do SSASs, which appear not to benefit from the same exemption as SIPPs, comply? Can a professional SSAS trustee apply for an LEI to cover all of its schemes, or is there a need to obtain an LEI for each scheme? Will all professional SSAS trustees interpret the rules in the same way?
* Will brokers interpret the rules in a consistent fashion? Will some take the view they just need an LEI of a trustee? Will others insist each trust must acquire its own LEI?
Anecdotally, I hear of different firms interpreting the rules in various ways. It also appears some firms are not yet aware they will need to comply with these rules in order for financial transactions to be carried out on behalf of their clients.
Let’s hope, come early 2018, these questions have been answered and clients are not left unable to trade because firms are viewing the requirements differently.
Gareth James is head of technical resources at AJ Bell
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