The MiFID II LEI rules could cause potential conflicts of interest, and inconsistencies between advisers and providers, which "does little to protect the end-consumer", according to IFA Martin Bamford.
The Informed Choice managing director and IFA (pictured) said he had told an individual client with a small self-administered scheme (SSAS) they did not need a Legal Entity Identifier (LEI) - only for the provider of the SSAS to tell the client the complete opposite.
An LEI is a unique 20-character code now used to identify 'legal entities' that undertake investment transactions in certain assets. The requirement for 'legal entities' to have an LEI is part of the MiFID II legislation.
According to Bamford, not all clients require an LEI as only those classed as ‘legal entities' are subject to the rule. Additionally, to need an LEI, the ‘legal entity' must be transacting in a ‘reportable financial instrument', such as company shares, ETFs, VCTs, investment trusts, warrants, gilts and structured products, as opposed to regulated collective investment funds such as OEICs and ICVCs.
‘Legal entities' he said, were generally not people but trusts, companies - both public and private - pension funds, charities and unincorporated bodies.
The SimplyBiz Group head of compliance policy Richard Nuttall explained that individuals already have an LEI in the form of their National Insurance number, but 'legal entities' must obtain one in order to be identified in transactions.
Nuttall added that a SSAS was a company arrangement and so would require an LEI where it invested in 'reportable instruments'.
Since, in this instance, Bamford argued, the client had disclosed the contents of the SSAS to him and he was confident it did not include any 'reportable instruments', the client did not need an LEI.
For a client who is exempt, Bamford continued, obtaining an LEI is a waste of both time and money as the process can be "painful" and expensive. "The LEI issue is an example of the complexity and confusion arising from MiFID II that ultimately does little to protect the end-consumer," he added.
LEIs do not come cheap, pointed out Bamford, who said Informed Choice had gone straight to the London Stock Exchange to obtain one and paid £140 - with a renewal fee of around £99 each year on top to come.
In contrast, the letter from the client's SSAS provider had said it could provide an LEI for between £300 and £400. The potential conflict of interest arising from providers profiting from customers applying for an LEI was, Bamford concluded, "a worry".
"We double-checked there were no reportable instruments within the client's portfolio and, in our opinion, they do not need to go to the expense and hassle of getting one," he said. "[Providers] are almost scaremongering people to pay for something they don't need, while we would always take the position - don't get one if you don't need one."
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