The global project to assign unique identifiers to parties in financial transactions has made rapid progress, bringing the industry and regulators closer to mapping interdependencies and risks in the financial system.
Following the inaugural meeting of the Board of Directors of the Global Legal Entity Identifier Foundation (GLIEF) on the 26th of June in Zurich, the GLIEF will now begin to assume management of LEI operations across the globe, under the continued oversight of the LEI Regulatory Oversight Committee (ROC).
The Board will direct the construction of the technology infrastructure of the LEI system and ensure adherence to governing principles and standards, including the reliability, quality, and uniqueness of LEIs. This initiative will in the longer term cut industry costs for cleaning, aggregating, and reporting data.
“The LEI is like a bar code for identifying entities that engage in financial market transactions. It is a linchpin for making connections in the massive volumes of financial data that course through the international economy every day, and will help companies manage their risk and government regulators analyze data related to financial stability.” Said Matthew Reed – Chairman of the LEI system’s Regulatory Oversight Committee in a statement. “The foundation will be the heart of the LEI system, building its technology infrastructure and ensuring adherence to governing principles and standards, including reliability, quality, and uniqueness.” He added.
The Legal Entity Identifier (LEI) is a 20 digit, alpha-numeric code that connects to key reference information to enable clear and unique identification of entities participating in global financial markets. Currently, LEIs contain the following data:
- 20 character unique ID
- Official name of the legal entity
- Address of the headquarters of the legal entity
- Address of legal formation
- Date of the first LEI assignment
- Date of last update of the LEI
Already, early-stage registrars have issued more than 300,000 LEIs in more than 170 countries. The members of the ROC, representing more than 60 public authorities in nearly 40 jurisdictions, agreed unanimously that with the Foundation in place, those identifiers are now qualified LEIs that can be used for regulatory reporting around the world.
However, it’s not all plain sailing for the industry – coming to terms with yet another identifier. As the LEI database is dynamic, firms must have the ability to consistently update and amend LEIs. In other words, if a legal entity changes names or owners, the LEI will change. When this occurs, users will need to ensure their internal records have been updated to accurately reflect the LEI.
There are also challenges for the local operating units (LOU) in each country implementing the register of LEIs including:
- Invalid counterparty names and legal entity information
- Poor data quality from incoming sources
- Duplicate records across global LOU systems
- Inaccurate or incomplete legal hierarchy information
- Lack of cross referencing between counterparties
- Difficulty sharing counterparty data between LOU systems
As LEI adoption continues to expand, it assures valuable insights into the often complex makeup of legal entities, into how financial institutions are structured, and into how they are connected to each other. Long term, if not readily apparent to firms now, the benefits will far outweigh the challenges. At a minimum, it will enable global regulators to better understand and manage the interdependencies between counterparties and systemic risks.
The Regulatory Oversight Committees press release is here.
The Financial Stability Board press release is here.
- ESMA Consults on Broadening the Scope of MAR
- EU Regulators Turn Tough on Market Surveillance Compliance
- SOTERIA and RIMES Technologies Partner to Provide a Real-Time Integrated Trade and Communication Surveillance Solution for Financial Services Firms
- The ETF Market is About to Explode: Is Your Firm Ready?
- RIMES Hires New Head of Sales for Asia