I wrote a piece at the beginning of the summer on the Legal Entity Identifier (LEI) codes.
This European initiative is the one that created a global database that identifies every legal entity or structure that is party to a financial transaction by a 20 digit, alpha-numeric code.
These rules came into force on 1 January 2017 and implementation is from 3 January 2018 and are required before any trading in financial markets occurs.
There isn’t a specific legal definition of a legal entity but it includes trusts, companies, pension funds, charities and unincorporated bodies.
The majority of self-invested personal pension (SIPP) providers have been registering their SIPP products even though it is not a requirement but investment managers expect it and most will have an LEI number now. Though note it is the Trust company that registers. This is a much easier process than for small self-administered scheme (SSAS) administrators.
For SSAS, it isn’t as clear-cut as just obtaining an LEI for a scheme and that is why I wanted to highlight this issue again.
My article back in June has lead to a few calls in recent weeks, asking me for clarification on the situation. The blog highlighted that TPR had stated an LEI is needed for any scheme over 2 members, and that this is the guidance we as an industry should give to advisers and scheme members. However, we decided as a firm that we would register all our SSAS that have investment as we worried if at a later date a member was added this could cause a problem
This will ensure that all SSAS that are likely to trade or wish to trade in any investment activity are covered. There have already been cases where stockbrokers that act as discretionary investment managers for a SIPP or SSAS are insisting that an LEI is obtained and if the scheme does not have one then they will not be able to provide the client with investment services or be unable to execute any trades.
In addition, if they are offering discretionary and/or advisory managed services, where the stockbroker undertakes the suitability monitoring on the portfolio they will terminate their contract with the scheme.
Having the LEI in place also means that SSAS members will have no issues with selling assets if needed to draw benefits from 3 January 2018 when the rules become effective.
The costs are not high for an LEI, £115 plus VAT in the first year and then £70 thereafter, but it is an additional cost that members may not be aware of and so it is important that administrators make them aware of it.
We may be making plans to leave the EU, but the legislation and regulations will continue to impact on the UK pension system.
Elaine Turtle is director at DP Pensions
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