LEI is the linchpin that connects the dots across the universe of entity identification.

This is GLEIF

Established by the Financial Stability Board (FSB), the Global Legal Entity Identifier Foundation (GLEIF) is a not-for-profit organization tasked to facilitate the implementation and use of the Legal Entity Identifier (LEI) worldwide.

GLEIF manages the only open, non-proprietary entity identification system that is designed as a public good for users of the public and private sectors. By doing so, it enables people and businesses to make smarter, less costly and more reliable decisions about who to do business with. With the Global LEI Index, the largest global online source that provides open, standardized and high-quality legal entity reference data, users can access information on entity and ownership data. Accurate entity data and clarity on corporate ownership structures help users to manage risks, work efficiently and grow business.

Get to Know GLEIF

About the LEI

The Legal Entity Identifier (LEI) is a 20-character, alphanumeric code based on the ISO 17442 standard.

The LEI uniquely identifies legal entities that engage in financial transactions, thereby helping to create greater transparency in the marketplace. Accepted as standard for global use, the LEI has become a reporting requirement for several market regulatory organizations.

GLEIF Annual Report 2018 | 4

LEIs Worldwide

Growth of the LEI data pool

At the end of 2018, the total LEI population exceeded 1.3 million worldwide. This constitutes a growth of nearly 40% year on year.

This map shows the total number of active LEIs by jurisdictions at the end of 2018.

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3,107

data challenges managed

~2,500

daily file downloads (Golden Copy and Concatenated File)

17.6

million

revenue

37

staff members from

21

countries

3,841

service desk inquiries managed

2018 Highlights

GLEIF in numbers

1,516

processed requests in data quality

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LEI Look-up API

Provides users with faster, customized and automated access to the legal entity identifier data pool in realtime.

LEI Business Statistics

Access to key facts and figures on the global LEI population.

LEI Search Tool 2.0

Enhanced functionality enables identification of corporate ownership structures and pinpoints other identifiers that are mapped to an LEI.

Certification of LEI Mapping Service

Provides users with accurate cross-referencing of key entity identifiers, free of charge.

Golden Copy File

Data users obtain frequently updated information on LEIs and related reference data in a ready-to-use format.

2018 Highlights

GLEIF’s core services

NEW

NEW

NEW

NEW

GLEIF Annual Report 2018 | 10

Dear Stakeholder,

After LEI registration had doubled last year, stable growth continued in 2018 at nearly 40%, further expanding the Global LEI System. For GLEIF, 2018 has been a year of taking stock. I am pleased to see our Foundation matures with its challenges. GLEIF achieved the consolidation of major projects that are instrumental for the strategic success of the organization.

GLEIF delivers added value for the LEI users globally with its diversified suite of services. The LEI identifies legal entities that are parties to financial transactions. GLEIF’s services are free of charge and intellectual property rights. GLEIF makes available the hierarchy and ownership data of legal entities. This is essential to better understand businesses and their relationships with other private or public-sector entities. GLEIF thereby delivers its services as mandated by its founder, the Financial Stability Board.

I am pleased to see that GLEIF services are being optimized day by day. With the LEI data pool, users are able to source additional information relevant to an LEI record, such as enriched reference data or mapping to other industry identifiers.

As highlighted by many audiences addressing identification management, it remains of critical importance that users can rely on accurate, complete and up-to-date legal entity data. There is no other global, open source system of legal entities with such a strict regime of regular data verification to ensure high-quality data.

Our mandate is to further implement the LEI as a global standard and as a broad public good for the benefit of users in the public and private sectors.

Cooperation

Deepening the dialogue with the partners of the Global LEI System is vital to implement GLEIF’s objectives as well as future projects.

In 2018, the Board of Directors held regular meetings with the Executive Committee of our overseer, the LEI ROC. We advanced discussions on, inter alia, fund relationships and individuals acting in a business capacity.

Chairman’s Report

Gerard Hartsink

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“The supply chain is becoming increasingly global and digital. This requires a stronger system for the identification of trading partners for public and private purposes. The LEI is a promising candidate because it is a high-quality identifier of legal entities that is provided free of charge to any user.“

Gerard Hartsink, GLEIF

The LEI ROC Progress Report published in April 2018 recommended that individual jurisdictions may overcome the difficulties associated with the simultaneous existence of several domestic identity mechanisms by adopting the LEI. This would allow countries to leverage the infrastructure developed by the Global LEI System in particular for all cross-border challenges.

Financial condition

The financial state of the Foundation remains robust, which ensures preparedness for the future. From US$ 17.6 million in revenues, the largest increase was generated in early 2018, primarily triggered by EU regulation mandating the LEI for regulatory reporting (EU MiFID II/MIFIR). The Board of Directors decided to add the net surplus of US$ 8.4 million to the organizational capital in line with our purpose as a not-for-profit organization. The Board of Directors approved lowering GLEIF’s LEI fee from US$ 17 in 2018 to US$ 11 for the 2019 budget.

I believe, as Chairman of the Foundation, it is critical that our internal levels of cash reserves are managed in such a way as to ensure the sustainability of operations, respond to future risks and implement programs that contribute to the purpose of GLEIF.

Our Board of Directors supports the joint efforts of GLEIF, the LEI issuers and the LEI ROC members to improve the LEI renewal rates and reduce the increasing lapsed LEI rates that occur in some jurisdictions. Through these improvements, the Global LEI System can sustain its unique high data quality regime for the benefit of the users.

Governance

GLEIF has a robust governance structure that, in adhering to applicable legal and financial requirements, provides what we consider an adequate level of governance, combined with high standards of transparency and independence.

The Board of Directors held seven meetings during 2018, including four in-person meetings. The minutes of the Board of Directors meetings are published on the GLEIF website. This enables our stakeholders to follow the dialogue and conclusions of the Board of Directors.

The Board of Directors, supported by the Governance Committee, made considerable progress on succession planning during 2018. Consequently, the appointment process as well as the transition of Directors is guaranteed.

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The year 2018 was pivotal for GLEIF. Recognizing the opportunity to deliver more for our users, we expanded key services and advanced our growth initiatives. This in turn is opening up new avenues to increase participation in the Global LEI System, so that more people and businesses make use of the LEI. We believe in the power of the LEI as a global standard for legal entity identification, responding to the needs of the digital age.

With over 1.3 million entities in our Global LEI Index, we service the largest open online repository with standardized high-quality entity data. By the end of 2018, the majority of LEI registrants reported parent information. We will continue increasing the wealth of information with ownership data to identify corporate families, and this free of charge. I am proud to say that the number of accredited LEI issuers has grown by 65% year on year and GLEIF is now overseeing 33 organizations globally.

In 2018, our organization has made great progress specifically within the following areas.

More services

GLEIF enables people and businesses to make smarter, less costly and more reliable decisions about who to do business with. GLEIF meets these objectives by offering a broad range of services to the public and we do this in cooperation with our partners, the LEI issuing organizations. We continued to deliver our strategic goals throughout 2018, and laid the foundations for an exciting range of services for our users.

In 2018, GLEIF has provided in total 23 services. GLEIF implemented a Service Management System with the aim of receiving ISO 20000 certification. In this way, we ensure a reliable, timely and efficient service delivery as well as service operation to continue to be a credible partner for our stakeholders.

Without doubt, GLEIF’s Certification of Mapping Service constitutes an essential milestone in 2018. Together with SWIFT, we introduced the first open source BIC-to-LEI mapping in early 2018.

CEO’s Report

Stephan Wolf

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“GLEIF is on a journey to increase LEI adoption so that in the future, via our database, anyone can get a 360-degree view of the business landscape. This enables smarter, less costly and more reliable decisions about who to do business with, while bringing simplicity to onboarding and transacting.”

Stephan Wolf, GLEIF

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To improve the user experience, the new LEI Search 2.0 was launched and is currently in beta testing. This is essential for users since it offers more functionality, including the option to identify corporate ownership structures or pinpoint other identifiers that have been mapped to an LEI. The new Golden Copy Files, together with the delta files, also help LEI data users to get frequently updated information on LEIs and related reference data in an easy-to-use format. It is clear to envision the value delivered by these services growing considerably over time. In the area of standardization, GLEIF worked on developing semantically correct models of the LEI and its reference data, to ensure the use of consistent models of the LEI within several standards.

GLEIF offers improved access and usability to a unique, free data source that allows corporate dots to be connected globally. We expect the organization to be prepared, since new solutions require continuous investment for the resilience of our operations.

Reliable data

All these measures contribute to higher data quality and increased trust in the system. We further expanded our Data Quality Management Program in 2018. And we continue to be transparent about our own data governance. With our new data quality team, we kicked off projects that help to continue delivering accurate entity information in our data pool. The recent introduction of new data quality criteria and performance checks is instrumental to increasing the use and reliability of the LEI reference data.

We are committed to ensuring our data quality score remains well over 99%, and we will not stop raising the bar. Major data quality initiatives will materialize in the coming months so that we keep on making available trusted, reliable entity data for our users. This lies at the heart of our mission.

Performance

After a strong uptick in LEI issuance of nearly 100% as against the previous year, 2018 was a period of steady growth, at around 40%. GLEIF consolidated important projects as outlined above. GLEIF generated accumulated revenue of US$ 17.6 million in 2018 with a net surplus of US$ 8.4 million. Notably, in the first quarter of 2018 the overall renewal rate of close to 70% remained essentially stable, while projections foresee a decreasing renewal rate for 2019. Further mitigating future risks will be ensured through stable cash reserves. The LEI fee, that GLEIF receives from the LEI issuers, was lowered from US$ 19 to US$ 17 in the approved budget for 2018. In 2019, the LEI fee will be further reduced to US$ 11. Further lowering prices remains critical to establishing the LEI as a global standard worldwide. We will continue to address the issue of lapsed LEIs, and decreasing trends for renewal of LEIs in some jurisdictions, with the Board of Directors and the LEI ROC.

The global LEI data volume exceeded 1.3 million at the end of 2018. Nearly 40% more legal entities worldwide registered for an LEI. LEIs allow unique identification of organizations entering into financial transactions. The use of the LEI as a trusted entity identifier adds value for the public and private sectors.

LEI for regulatory use

LEIs are a regulatory reporting requirement in many jurisdictions worldwide.

In 2018, the largest LEI adoption was attributable to mandating LEIs by regulation particularly in Europe’s capital and money markets notably through the Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) of the European Union, requiring LEIs for transaction reporting since June 2018. The LEI as a standard gained traction particularly for counterparty identification, such as in the United States where it must be used by companies transacting with European counterparties, in India where it is used to identify credit borrowers over a certain size, and in Hong Kong and Singapore where it serves as a regulatory identifier. In 2018, India, Mexico and Turkey required LEIs for OTC derivatives reporting. LEIs were also required in Malaysia’s large value payment system, to name just a few examples.

The use of the LEI as a standard for entity identification adds value to regulators and public authorities in particular for improved data integrity, systemic risk analysis, reporting and market surveillance.

LEI for business use

Beyond regulation, the LEI generates significant advantages for many actors in the private sector. The benefits for the wider business community grow in line with the rate of LEI adoption.

Up until now, legal entity reference data has been proprietary, siloed and non-standardized, leading to inefficiencies and confusion in business processes and business relations. The LEI changes that. The LEI is key to entity data management and often functions as a primary link to centralize entity data from various silos across an organization, creating a single and complete record of each entity the organization does business with. The LEI can create efficiencies for the entire business community in any market segment supporting a multitude of applications, such as risk management, compliance, procurement and client relationship management. As a primary link for entity verification, the LEI will provide certainty of identity in any online interaction, making it easier for everyone to participate in the global digital marketplace.

Performance

GLEIF Annual Report 2018 | 20

Growth of LEI issuance

2017–2018

The chart below shows the growth of the number of LEIs issued by LEI issuer from 2017 to 2018.

1) LEI issuers with no LEI number were not operating yet in 2017 and were accredited in 2018.

2) LEI issuer transferred managed LEIs to GS1 AISBL.

3) LEI issuer ceased LEI operations.

GLEIF Annual Report 2018 | 22

Performance

Robustness of the Global LEI System

Accreditation ensures operational excellence

The Accreditation Certification Service is the process by which GLEIF evaluates the suitability of organizations seeking to operate within the Global LEI System as LEI issuers.

From 2017 to 2018, the number of accredited LEI issuers has grown by over 65%. Today, GLEIF oversees 33 organizations globally. The LEI issuers represent a diverse grouping, which includes governments, depositories and private and public organizations. GLEIF also continues to receive new applications from organizations seeking to participate in the Global LEI System.

GLEIF Annual Report 2018 | 24

“We believe in the power of the LEI as a global standard for legal entity identification, responding to the needs of the digital age.”

Stephan Wolf, CEO

The role of the LEI issuing organizations

LEI issuers – also referred to as Local Operating Units (LOUs) – act as primary interface for legal entities wishing to obtain an LEI.

Only organizations duly accredited by GLEIF are authorized to
issue LEIs.

Facts and figures

Competition in the Global LEI System

GLEIF evaluates the level of competition between LEI issuers operating in a jurisdiction. It is measured by the concentration score. The lower the concentration score, the stronger the competition in a jurisdiction.

The chart below identifies the top 10 most competitive markets of those LEI issuers with more than 1,000 LEIs by the end of 2018.

Concentration scores of jurisdictions. Most competitive (least concentrated) markets from left to right.

GLEIF Annual Report 2018 | 26

The Board of Directors of the Global Legal Entity Identifier Foundation takes great pleasure in presenting the fourth Annual Report of the Foundation and the audited financial statements for the financial year from December 31, 2017 to December 31, 2018.

The financial statements are prepared in accordance with applicable laws and regulations. Pursuant to Swiss accounting law, accounting standards are the International Financial Reporting Standards (IFRS) for the financial audit.

GLEIF is a Swiss foundation. The Board of Directors has a global, multi-sector set-up in line with GLEIF’s mandate of the G20 and FSB. The Board of Directors oversees the GLEIF strategy and activities, exercising its powers in the best interest for the purpose of the Foundation. GLEIF is subject to the oversight of the LEI Regulatory Oversight Committee (LEI ROC).

Board of Directors meetings

In 2018, the Board of Directors held seven meetings of which four were in-person meetings to ensure oversight of the Foundation’s operations and continued dialogue between Directors and the CEO supported by his management team. Pursuant to Article 16 of the Statutes, ex officio Board members, namely the Chair and two Vice-Chairs of the LEI ROC, participated as observers in the Board of Directors meetings.

The Board of Directors held two meetings with the LEI ROC Executive Committee. In addition, the GLEIF Chair and CEO were invited to report on the status of relevant activities and projects in two LEI ROC Plenary meetings. The GLEIF Chair and the CEO had biweekly meetings with the LEI ROC Chair and the two Vice-Chairs.

Directors’ Report

GLEIF Annual Report 2018 | 28

Board of Directors

On December 31, 2018, the Board of Directors of the Foundation consisted of 18 Directors from 4 regions mentioned in the GLEIF Statutes and 15 jurisdictions.

1. Gerard Hartsink, Chair (Netherlands)

2. Nabil Al-Mubarak (Saudi Arabia)

3. Jefferson Braswell (United States of America)

4. Bo Chen (China)

5. Changmin Chun (Korea)

6. Robin Doyle (United States of America)

7. Daniel Goroff (United States of America)

8. Hiroshi Nakatake (Japan)

9. Sandra Boswell (Australia)

10. Wolfgang König (Germany)

11. Alfredo Reyes Krafft (Mexico)

12. Ravi Mathur (India)

13. Bruno Schütterle (Switzerland)

14. Monica Singer (South Africa)

15. Christopher Taggart (United Kingdom)

16. Elemér Terták (Hungary)

17. Kam Keung Tse (Hong Kong, China)

18. Henrique de Rezende Vergara (Brazil)

Retirement, reappointment and appointment of Directors

Since the last report, the following changes took place in the Board of Directors of the Foundation.

Reappointment of Directors

The following four Directors were reappointed as Directors of the Foundation for a second term of office from June 2018 to June 2021:

1. Kam Keung Tse (Hong Kong, China),

2. Daniel Goroff (United States of America)

3. Paul Kennedy (Australia)

4. Elemér Terták (Hungary)

Pursuant to Article 17 and 20 of the Statutes, the following Director was reappointed to serve for an exceptional term of office:

1. Nabil Al-Mubarak (Saudi Arabia) was reappointed as Director of the Foundation for an exceptional term from June 2018 to June 2020.

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Principal activities

In 2018, the Board of Directors focused its oversight on the core activities of the Foundation. These include the strategy of the Foundation, the budget and the use of resources, and the internal controls for operations and processes. The Board of Directors reviewed the implementation of relevant policies and internal audit recommendations supported by the Audit and Finance Committee.

The Directors are of the opinion that GLEIF made substantial progress demonstrating added-value use cases for the LEI as a global standard for entity identification. This further contributes to making the LEI a broad public good for the benefit of both public and private sector users, as required by GLEIF’s Statutes.

The Board of Directors ensured that users from the public and private sectors were able to use the LEI data of the Global LEI Index free of charge. At the end of the year, GLEIF oversaw 33 LEI issuing organizations globally that were approved for accreditation by the Board of Directors. As the Global LEI System matures, accreditation has expanded its focus towards the Annual Accreditation Verification program. This is a key component of GLEIF’s oversight function and provides for a 360-degree review of LEI issuers’ operational and financial health. It is important that GLEIF ensures LEI issuers consistently comply with the internal controls necessary to protect and control LEI general and reference data integrity.

The Directors supported GLEIF’s investments to expand its services and increase user experience. This includes the ramping up of IT applications such as the optimization of the LEI search tool, safeguarding the extension of the collection of relationship data (direct and ultimate parent information) as well as important projects in the area of data governance. Overall, ensuring high-end services and strong data quality remains key.

During the year, the Directors oversaw the approach to implementing the vision and strategy of GLEIF. In October 2018, the Directors took stock of the steps taken and evaluated the short, medium and long-term balance between goals and resources. The Board of Directors approved adjusted business objectives for 2022.

GLEIF Annual Report 2018 | 32

GLEIF actively supports the International Open Data Charter, which aims to foster greater coherence and collaboration to promote the increased adoption of shared open data principles, standards and good practice across sectors globally.

The Foundation operates with a high degree of transparency and publishes all relevant information on its website in line with the governance principles of the Global LEI System and general policies as approved by the LEI ROC.

Sound management

The Board of Directors is satisfied that the Foundation promotes prudent management to ensure the best use of resources and sustainable funding. The Directors believe that the CEO and his team conducted relevant investments to improve the GLEIF services and keep data quality standards high.

Quality assurance and continuous improvement needs to stay at the heart of the activities of the Foundation. The Board of Directors believes that GLEIF’s planned certification to ISO 20000 supports these goals.

Compliance and internal control

The Foundation is governed by the Statutes, including its annexes and policies. The Directors reviewed the Annual Compliance Report of the Chief Compliance Officer (CCO). The Board of Directors acknowledged the CCO’s opinion that the overall compliance risk of GLEIF with respect to significant exceptions or omissions is low.

Going concern

The Board of Directors approved the Annual Report including the Financial Statements for the financial year 2018. The Board of Directors is satisfied that the Annual Report 2018 gives a true and fair view of the state of affairs of GLEIF, its performance, business and financial condition.

Furthermore, so far as each of the Board of Directors is aware, there is no relevant audit information of which the auditors were unaware. The selected accounting policies were applied consistently. The internal controls and financial controls were adequate and the systems in place ensured compliance with applicable laws. The Directors assess that GLEIF is in good financial health. GLEIF has the capacity to expand and grow performance within its chosen markets. The revenue shall be used exclusively in furtherance of the Foundation's not-for-profit purpose.

The Board of Directors recognizes the number of planned projects to strengthen services and LEI use cases. The Board of Directors views potential project risks as manageable and considers available funds to be adequate.

By order of the Board of Directors

Chairman

GLEIF Annual Report 2018 | 34

Decision-making of the Board of Directors

The Board of Directors is the highest governing body of the Foundation. It oversees GLEIF while exercising its powers in the best interest of the Foundation. The Board of Directors makes decisions independently and on its own authority and judgment. The Board of Directors determines the Foundation’s policies, controls and implementation of the strategy and evaluates the short, medium and long-term balance between goals and resources.

The Board of Directors held seven meetings in 2018. The Chair and two Vice-Chairs of the LEI ROC participated in all Board of Directors meetings during 2018. The minutes of the Board meetings are published on the GLEIF website.

Composition of the Board of Directors

The composition of the Board of Directors is designed to reflect the global mandate of GLEIF. Guided by Article 13 of the Statutes, the Board of Directors is determined to represent all regions of the world. It follows a specific formula of geographic, sector and skills representation ensuring the right balance of excellence and diversity in the composition of the Board of Directors. The Board of Directors may be composed of up to 25 independent Directors, which govern the Foundation and oversee management.

Director nominations

Directors are nominated within an open and transparent process. According to Article 15 of the Statutes, the nomination procedure is coordinated by the Chair, who is supported by the Governance Committee. Newly appointed Directors are subject to a “no objection declaration” of the LEI ROC. Pursuant to Article 17 of the Statutes, Directors are eligible to hold office for a three-year term, renewable for an additional term of three years.

The Board of Directors nominates a Chair and Vice-Chair of the Board of Directors and the Board Committees. In its recruitment practice, the Board of Directors is committed to anti-discrimination across any category of diversity including gender, ethnicity, disability and sexual orientation.

Director service

Directors serve on an unpaid basis according to Article 19 of the Statutes. They are reimbursed for travel costs incurred in the performance of their mandate. Each Member signs a Director’s Agreement for his/her services to the Board of Directors and acknowledges annually his/her responsibilities under the GLEIF Conflict of Interest Policy.

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Competition in the Global LEI System

The Board of Directors established an ad hoc Committee on Competition in 2017 to assess the level of competition in the Global LEI System. The Board of Directors viewed that the ad-hoc Committee of Competition fulfilled its mandate by issuing a competition report to the Board. Based on available facts and numerical analysis, the Committee assessed there was no immediate risk to the competition in the Global LEI System. As a consequence, the Board of Directors dissolved the ad-hoc Committee on Competition in June 2018. Given the relevance of continuous competition in the Global LEI System, a respective status report will be reviewed by the Board of Directors at least once per year.

Statutes: Term of office of Directors

Directors viewed the need to extend the term of office of Directors from a term of two years to a term of three years in order to reduce turnover and keep the knowledge and network of Directors available longer for the Board of Directors. Relevant amendments of Article 17 and, respectively, Article 20 of the Statutes were adopted in June 2018. The term of office of three years is now in line with the term of office of the LEI ROC Executive Committee members, as included in Article 10c of the LEI ROC Charter of 5 November 2012.

This is the first amendment since the establishment of GLEIF. The amended Statutes came into force on August 7, 2018 after the approval of this amendment by the Swiss Supervisory Board of Foundations.

Succession

The Board of Directors made relevant decisions on succession for the Board of Directors to ensure sustainability supported by the counsel of the Governance Committee. The Board of Directors established a Board Alumni Network to give former Directors the opportunity to support GLEIF, in their capacity as ambassadors, promoting the LEI in relevant jurisdictions and/or industries according to the approved GLEIF strategy.

Self-assessment

The Board of Directors undertakes a periodic review of its performance by self-assessment. The assessment focuses on the effectiveness and efficiency of the Board of Directors and its Committees.

In 2018, each Director participated in the self-assessment. The Governance Committee conducted a review of the self-assessment methodology and assessed the results of the Board of Directors and its Committees and provided requested feedback on its findings to the Board of Directors. At the end of 2018, the Board of Directors launched a public Request for Proposal in order to conduct an external review of its Governance Program in 2019.

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LEI for Business Value

The LEI offers solutions to a number of challenges facing market participants.

Use case: LEI in capital markets

LEI benefits the entire life cycle of the client relationship in capital markets

LEIs can help reduce operational costs in many capital market processes. Introducing LEIs into capital market onboarding and securities trade processing could reduce annual trade processing and onboarding costs by 10% as estimated by the joint research of McKinsey & Company and GLEIF. This would lead to a 3.5% reduction in overall capital market operations costs, amounting to over US$ 150 million in annual savings for the global investment banking industry alone. The LEI’s primary value in this segment is derived from reducing the cost of onboarding clients and of middle- and back-office activities related to the processing of stocks, bonds and other securities trades. All such activities could be simplified and streamlined if LEI use were more broadly adopted throughout the life cycle of the client relationship. The use of the LEI would also reduce the time spent on data correction and reconciliation.

Internal operational teams increasingly deploy the LEI as the primary identifier that aggregates and reconciles client trade-relations information, which is often stored in disparate internal systems and tagged under different client ID numbers. They have found that internal communications and trade reconciliation-related tasks have been simplified and expedited through its use.

As estimated by the joint research of McKinsey & Company and GLEIF, broader, global adoption of Legal Entity Identifiers (LEIs) could yield annual savings of over US$ 150 million within the investment banking industry and up to US$ 500 million for banks in the issuance of letters of credit.

Annual savings in investment banking would include at least 10% of total operational costs for onboarding clients and trading processing through the use of the LEI.

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Key steps in international B2B trade

LEI for Business Value

The LEI offers solutions to a number of challenges in the area of trade finance.

Use case: LEI in trade finance

From counterparty identification to business value: The use of the LEI in trade finance

LEIs would enable faster processing of letters of credit and better identification of sellers on e-invoicing networks.

Challenges

The commercial transaction life cycle is complex. It involves ordering goods, sending invoices for the goods, obtaining trade financing, producing the goods, reconciling payments and delivering/receiving the goods. The list is endless. The McKinsey & Company and GLEIF white paper found that the use of an LEI could have a considerable impact on the invoicing and trade finance element of this life cycle.

Banks in trade financing could save up to US$ 500 million per annum overall by using the LEI in the issuance of letters of credit.

GLEIF Annual Report 2018 | 42

Solutions

These manual checks could be streamlined considerably and made far less costly through the adoption of the LEI. LEIs would enable the immediate, digitized identification of entities and would allow banks to dramatically curtail the time and resources spent on background checks and investigations. These efficiencies would be compounded by reducing the incidence of false positives based on AML and other compliance lists. Rather than searching by name, institutions could simply search the relevant databases using each entity’s unique LEI – or, in an advanced stage, using a single database.

In addition to facilitating AML efforts, the use of the LEI can mitigate fraud risk. Using an entity’s LEI, a seller’s bank could trace outstanding invoices to identify suspicious activity like multiple invoices for the same shipment.

LEI benefits for banks in trade financing

The LEI makes the following two key activities in a complicated process far simpler:

― Verification of entities and tracking an entity’s history. On an annual basis, banks could potentially collectively save between US$ 250 million and US$ 500 million per annum if LEIs were used to identify international entities and to automate the tracing of their history for the issuance of letters of credit, based on McKinsey & Company and GLEIF research. At its maximum potential, these savings could represent 4% of the current global trade operations cost base. The lower end of this estimate assumes high adoption in Europe and North America with low adoption in Asia, while the higher end of the estimate assumes high adoption globally.

― The use of the LEI would also facilitate better risk management by allowing banks to maintain a more holistic view of the transacting entity.

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Following certification, the mapping partner is required to maintain these quality standards and, at regular intervals, GLEIF performs validation activities to confirm that the output continues to meet GLEIF’s required performance standards. GLEIF also publishes a relationship file that matches the applicable identifier against the LEI. Data users may access this information via the GLEIF website for integration into their existing data platforms.

The diagram demonstrates the six steps of the GLEIF Certification of Mapping Service.

GLEIF Certification of Mapping process

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Partnerships

GLEIFʼs engagement with partners globally

Riyadh, Saudi Arabia

2018-02-08 | Meet the Market event

Saudi Credit Bureau (SIMAH) hosted the LEI Meet the Market event with representatives from the banking, finance, investment and insurance sectors.

Bringing stakeholders together: Debating topics of common interest

GLEIF participated in almost 50 conferences, roundtables and promotional meetings in 2018. GLEIF believes in the value of having an open dialogue with many stakeholders interested in the LEI as a global standard all over the world. This way, we can best understand market needs. Also, the continuous exchange of views helps to develop use cases for the best possible application of the LEI for identification management.

During 2018, we continued to engage with our stakeholder groups, including data and technology vendors, large statistical users as well as the Globally Important Financial Institutions (GIFI). We also established and deepened our engagement with partners in the area of payments, the digital economy and the supply chain.

San Francisco

2018-05-15 | Board of Directors meeting

2018-05-16 | Joint meeting of the LEI ROC Executive Committee and the Board of Directors

2018-05-17 | GLEIF Identity Management Workshop. The LEI, a global framework for legal entity identification initiated by the G20.

This workshop, hosted by GLEIF, brought together representatives from the public sector and the technology industry to find common ground on the use of the LEI for innovative solutions.

Basel

2018-01-31 | Board of Directors meeting

Each year, a Board of Directors meeting is held in Basel, Switzerland where GLEIF has its registered domicile.

GLEIF Annual Report 2018 | 48

GLEIF Annual Report 2018 | 50

Statement of Comprehensive Income

for the Period from January 1 to December 31, 2018

GLEIF Annual Report 2018 | 52

Cash Flow Statement

for the Period from January 1 to December 31, 2018

GLEIF Annual Report 2018 | 54

Notes to the Financial Statements 2018

GLEIF Annual Report 2018 | 56

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). GLEIF also prepares a set of statutory financial statements in accordance with the Swiss Code of Obligations.

These financial statements are presented in US dollars (US$), with rounding to the nearest dollar, unless otherwise stated.

The financial statements are prepared on the historical cost basis, unless otherwise stated in the accounting policies.

The accounting policies set out below are unchanged from the prior period and have been applied consistently throughout both periods.

2.1 Foreign currency

The functional currency of GLEIF is the US dollar as the Foundation generates its revenues and receives almost all cash flows from the LEI issuers (also referred to as Local Operating Units (”LOUs„)) in this currency.

Transactions that are denominated in a currency other than the US dollar are recorded at the spot exchange rate at the date when the underlying transactions are initially recognized. At the end of the reporting period, foreign currency-denominated monetary assets and liabilities are retranslated into US dollars applying the spot exchange rate prevailing at that date. Gains and losses arising from these foreign currency revaluations are recognized in income.

The exchange rates of the most significant foreign currencies are:

2. Basis of presentation and summary of significant accounting policies

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2.4 Interest

Interest income and expense are recognized using the effective interest method. The effective interest rate is established on initial recognition of the financial asset or liability and is not revised subsequently.

2.5 Income taxes

Since 2015, the Foundation’s activities are located in Basel, Switzerland and in Frankfurt am Main, Germany. GLEIF is free from Swiss income taxes based on an assessment of the tax authority Basel-Stadt, Switzerland. In Germany, the activities of GLEIF to manage and monitor the Global LEI System are free from corporate and trade tax on income by law.

2.6 Provisions

A provision is recognized in the balance sheet when the Foundation has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are recognized at present value by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money. When a contract becomes onerous, the present obligation under the contract is recognized as a provision and measured at the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract as far as they exceed the expected economic benefits of the contract. Additions to provisions and reversals are generally recognized in the income statements.

Provisions for pension obligations are recognized by using the projected unit credit method, based on reasonable assumptions for the long-term expected rate of salary increases and benefit increases, demographic assumptions and long-term interest rates as of the balance sheet date. The related plan assets are recognized at their fair value, in accordance with IAS 19.

2.7Lease commitments

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases.

Finance leases

GLEIF recognizes assets held under finance leases at the fair value at the inception of the lease, or if lower, at the present value of the minimum lease payments. The related liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between interest expenses and capital redemption of the liability.

Contingent rentals are recognized as expenses in the periods in which they are incurred.

Operating leases

GLEIF recognizes operating lease payments as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognized in the period in which they are incurred. Lease incentives and similar arrangements of incentives are taken into account when calculating the straight-lined expense.

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Financial instruments are recognized on the balance sheet when GLEIF becomes a party to the contractual obligations of the instrument. Regular way purchases or sales of financial assets, i.e., purchases or sales under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place concerned, are accounted for at the trade date.

Initially, financial instruments are recognized at their fair value. Transaction costs directly attributable to the acquisition or issue of financial instruments are only included in determining the carrying amount, if the financial instruments are not measured at fair value through profit or loss. Subsequently, financial assets and liabilities are measured according to the category – cash and cash equivalents, loans and receivables, financial liabilities measured at amortized cost – to which they are assigned.

Cash and cash equivalents

The Foundation considers all highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value and have less than three months maturity from the date of acquisition to be cash equivalents. Cash and cash equivalents are measured at cost.

Loans and receivables

Financial assets classified as loans and receivables are measured at amortized cost using the effective interest method less any impairment losses. Impairment losses on trade and other receivables are recognized using separate allowance accounts.

Financial liabilities

The Foundation measures financial liabilities at amortized cost using the effective interest method.

2.11 Accounting pronouncements applied in the financial statements

GLEIF has applied all IFRS accounting pronouncements that are effective for this reporting period. The Foundation has not adopted standards already issued but not yet effective for this reporting period.

IFRS 9

From January 1, 2018 the final version of IFRS 9, Financial Instrument is effective. The new standard replaces IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces a single approach for the classification and measurement of financial assets according to their cash flow characteristics and the business model they are managed in, and provides a new impairment model based on expected credit losses. IFRS 9 also includes new regulations regarding the application of hedge accounting to better reflect an entity’s risk management activities, especially with regard to managing non-financial risks.

The classification and measurement of financial instruments under the new standard had no material impact on the Foundation’s financial statements.

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2.13 Critical accounting estimates

The financial statements are prepared in accordance with IFRS as issued by the IASB. The significant accounting policies, as described above and in this section, are essential to understanding the Foundation’s results of operations, financial positions and cash flows. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates may have a material impact on the results of operations, financial positions and cash flows.

Revenue recognition on service contracts

The allocation of revenue relating to the Foundation’s service contracts with LEI issuers to the appropriate accounting periods is based on reasonable estimates of the timing of the underlying LEI service contracts between the LEI issuers and the LEI users. The Foundation receives quarterly reports from the LEI issuers detailing the number of LEIs renewed or newly issued by the LEI issuers. GLEIF has applied estimates, assuming that the issuance and the renewal of each LEI, and the related start of a standard one-year service period, is distributed on a straight-line basis within the reported quarters. Changes in these estimates may lead to an increase or decrease of revenue.

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Pension plan

Under Swiss law, GLEIF has to arrange for an affiliation contract with a pension fund for the Swiss employees to comply with legal requirements. The pension fund has to provide at least occupational benefits according to law.

In 2015, GLEIF set up a pension plan in Switzerland, with AXA Vorsorgestiftung, as a collective foundation. Based on the plan rules and pension law in Switzerland, the plan qualifies as a defined benefit scheme under IFRS. The insurance plan is contribution-based. The plan contains a cash balance benefit formula. Under Swiss law, the pension fund guarantees the vested benefit amount as confirmed annually to members.

The collective foundation of AXA guarantees a 40% coverage of the retirement accounts covered by an insurance policy. The other assets are pooled for all affiliated companies. The collective foundation can adjust risk and cost contributions according to the circumstances. The employer has to cover at least half of all contributions. The collective foundation is able to withdraw from the contract with the employer. In that case, the company needs to affiliate with another pension institution.

GLEIF recognized pension cost of US$ 9,845 (2017: US$ 34,071) within personnel expenses and net interest expenses of US$ 163 (2017: US$ 374), and paid employer and employee contributions of US$ 8,103 (2017: US$ 8,385) to the scheme.

Actuarial gains of US$ 8,679 (2017: US$ 53,432) from the defined benefit obligation, net of US$ 5,367 losses (2017: US$ 9,006) from the return on plan assets have been recognized as other comprehensive income.

The defined benefit obligation amounts to US$ 56,301 at December 31, 2018 (December 31, 2017: US$ 47,124), net of the plan assets of US$ 35,608 (December 31, 2017: US$ 24,753). A net pension liability of US$ 20,693 (December 31, 2017: US$ 22,371) has been recognized in the balance sheet as at December 31, 2018.

The weighted average duration of the obligation is 17.2 (2017: 18.8) years. The employee and employer contributions expected for the next fiscal year are US$ 6,637 each.

For the calculation of the defined benefit obligation a discount rate of 1.0% (2017: 0.7%) and a long-term salary increase rate of 1.0% (2017: 1.0%) is used. Mortality, risk of disability and turnover rates are set in accordance with the statistical database BVG 2015.

For the most important parameters that influence the pension obligation of the employer a sensitivity analysis has been performed. The discount rate and the assumption for salary increases are modified by a certain percentage. Sensitivity on mortality is calculated by changing the mortality with a constant factor for all age groups, resulting in a change of the longevity for the ages by one year longer or shorter as the baseline value. The sensitivity analysis results are as follows:

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3.3 Other operating expenses

The currency losses result from payment of invoices in foreign currency as well as the translation of monetary balances as at the end of 2018. Currency gains of US$ 387,315 (2017: US$ 451,851) are shown within the other operating income, resulting in a net currency loss of US$ 338,014 (2017: US$ 232,444 net currency loss).

The consulting and advice item includes US$ 131,711 (2017: US$ 100,633) of research costs.

In 2017, GLEIF changed its value added tax (VAT) assessment related to the revenues recognized on the service contracts with certain LEI issuers in the current and previous year. The Foundation had accrued US$ 195,000 for potential losses related to European LEI issuers who have not yet provided a VAT registration number. This accrual was not used and reversed in 2018, shown under other operating income.

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Within the other operating income the release of a US$ 195,000 VAT accrual for European LOUs as well as additional administration cost of US$ 40,000 are included as a one-off occurrence. In addition an accrual of US$ 50,000 for operating expenses was reversed, which, retrospectivly, had to be reclassified as an intangible asset.

The refunds and reimbursements include an insurance compensation for stolen assets in the amount of US$ 26,887.

3.5 Subsidies and donations

In 2016 and 2015, GLEIF received assistance from a government authority of the region of Hesse, Germany (”Hessisches Ministerium fÜr Wirtschaft, Verkehr und Landesentwicklung„). The assistance was limited to a maximum of EUR 250,000 in each year. In order to receive the assistance GLEIF was required to incur certain qualifying expenditure. GLEIF complied fully with the terms of the subsidy and in turn received the full amount of EUR 250,000 (US$ 260,725 in 2016 and US$ 274,400 in 2015). GLEIF has not benefited from any other form of government assistance. There are no unfulfilled conditions or other contingencies attaching to government assistance that have been recognized.

The portions of the subsidies attributable to capital expenditures (tangible and intangible fixed assets), advance payments and deferred expenses have been deferred, and are amortized over the useful life of the related fixed assets.

3.6 Financial income/expense

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4.3 Other current assets

4.4 Cash and cash equivalents

The position consists of current bank accounts and cash on hand.

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The Global LEI System IT solutions contain specific developed software for the maintenance and quality assurance of the Global LEI System databases as well as data exchange tools for the communication between GLEIF and the LEI issuers.

The other intangible assets contain standard software licenses and the new ERP system. The prepayments from 2017 relate to a new ERP system, which was introduced in early 2018.

All intangible fixed assets stem from external developments or purchases.

The presentation of low-value assets was changed as of January 1, 2018. Since this date the disposal of all low-value assets is assumed in the year of their acquisition. For all low-value assets purchased in prior years the disposal is shown in this year.

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The finance lease contract concerns specific computer equipment, the contract terms of which are disclosed under note 4.9. Legal ownership will not be transferred under these terms.

No asset is pledged as security for liabilities of the Foundation. Nevertheless, in accordance with general purchase conditions in Germany, most vendors will withhold the legal ownership of assets delivered until the purchase price is fully paid.

The presentation of low-value assets was changed as of January 1, 2018. As of this date the disposal of all low-value assets is assumed in the year of their acquisition. For all low-value assets purchased in prior years the disposal is shown in this year.

The impairment is based on / caused by the impending driving ban for diesel vehicles in Frankfurt am Main, Germany.

4.7 Payables to vendors

Payables due within three months

The majority of the current payables to vendors, including accrued payables, are due or will become due within three months after the balance sheet date. Normal payments terms agreed with the vendors range between 7 and 30 days after invoicing.

Payables due later than three months

US$ 71,395 (December 31, 2017: US$ 114,724) in payables relate to a deferred rent liability that reflects the amortization of an initial seven-month rental-free period over the five-year initial fixed rental period. This accrued liability is split in a long-term portion of US$ 32,475 (December 31, 2017: US$ 74,362) and a short-term portion of US$ 38,920 (December 31, 2017: US$ 40,362) of which US$ 29,190 (December 31, 2017: US$ 30,272) is due between four and twelve months after the balance sheet date. This liability is recognized with its present value by using an appropriate interest rate for corporate bonds.

4.8 Deferred revenue

The deferred revenue is accrued in accordance with the outstanding portions of LEI service periods within the Global LEI System. See sec. 2.2 above.

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Finance lease

In September 2015, GLEIF entered into a finance lease agreement to rent certain items of office equipment. The rental period is five years commencing November 2015. The interest rate has been calculated to approximately 2.02% over the rental period. The rental payments are equal and are payable monthly over the rental period. The ownership of the equipment does not pass to the Foundation at any time during the rental period.

The gross minimum lease payments and the related present values are as follows:

The reconciliation of the changes in liabilities arising from financing activities with the related cash flows is shown in the following table.

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4.11 Organizational capital

The Foundation’s initial paid-in foundation capital in an amount of CHF 50,000 was contributed by the Financial Stability Board, according to Article 7 of the GLEIF Statutes. With the consent of the GLEIF Board of Directors, the Financial Stability Board is permitted, but not obliged, to make additional contributions.

The total comprehensive income earned in 2018 will be allocated to the Foundation’s reserves.

According to Article 10 of the GLEIF Statutes, any surplus generated by GLEIF is dedicated to pursuing the purposes of the Foundation. Any distribution payment to Directors, employees or third parties, other than those made with the consent of the GLEIF Board of Directors and in accordance with the Foundation’s purpose, is not permitted.

The Foundation’s capital does not entitle the founder to receive distributions, or any repayment of the capital contributed.

Together with the retained surplus and other reserves, the total organizational capital is US$ 11,305,800. According to the Statutes, GLEIF must operate on a not-for-profit basis. In order to ensure the sustainable performance of the Foundation, the GLEIF Board and management believe that a reasonable level of total capital reserve is necessary.

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The realization and valuation of the financial assets and liabilities mentioned above generated a net foreign currency loss of US$ 338,014.

The total interest income, interest expense and total expenses from financial instruments are:

The bank transaction expenses are presented under the operating expenses.

5.2 Financial risk management

The Foundation’s operating business as well as its intended future investment and financing activities are affected by changes in foreign exchange rates, and interest rates. In order to optimize the allocation of the financial resources, GLEIF identifies, analyzes and manages the associated market risks. The Foundation seeks to manage and control these risks primarily through its regular operating and financing activities.

Foreign currency exchange rate risk

The intended operating structure of GLEIF exposes the Foundation to foreign currency exchange rate risks, particularly regarding fluctuations between the US dollar and the Swiss franc as well as the euro, in the ordinary course of business. Based on an annual budget and monthly interim statements, the Foundation plans the future financial disbursements in each significant transaction currency to mitigate the risk exposure to unpredicted and unwanted currency exchange expenses.

IFRS 7 requires the presentation of the effects of hypothetical changes of currency relations on surplus and equity using a sensitivity analysis. The changes of currency prices are related to all financial instruments outstanding at the end of the reporting period. To determine the net foreign currency risk the financial instruments are categorized according to their foreign currency, and a 10% increase or decrease is assumed for the transaction currency. The following table shows the effect for the two main foreign transaction currencies.

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The Directors did not receive remuneration for their services as Directors of the GLEIF Board, with the exception of the reimbursement of their travel costs.

The 2018 and 2017 travel reimbursement expenses and liabilities for the Board Directors include claimed expenses as well as accrued expenses for outstanding reimbursement. In 2018, US$ 23,200 accrued liabilities for 2017 Board travel expenses were released.

The key management personnel of GLEIF consist of the CEO, the CFO, the Head of Business Operations and the General Counsel.

Short-term receivables due from key management personnel amounting to US$ 13,018 (December 31, 2017: US$ 12,596) were paid during 2018.

The expenses for the pension scheme for Swiss employees in the favor of the senior management were US$ 9,845 (2017: US$ 34,071).

6.1 Related party transactions

Related individuals of GLEIF include the Members of the Board of Directors, the Chief Executive Officer and the senior management, and the members of the Regulatory Oversight Committee. Related organizations include the Financial Stability Board.

The following table discloses the current and prior-year transactions with related parties, and the payables due December 31, 2018, and 2017:

6. Other information and disclosures

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The Board of Directors consisted of the following individuals during the fiscal year 2018.

7. Board of Directors, Secretary and Chief Executive Officer

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Independent Auditor’s Report

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Independent auditor’s report

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Director: Jefferson Braswell

Affiliation: Tahoe Blue Ltd

Role: Founding Partner & Chief Executive Officer


Director: Robin Doyle

Affiliation: JPMorgan Chase

Role: Managing Director for Corporate Regulatory 
Strategy & Policy

Director: Gerard Hartsink

Role: Chairman

Director: Wolfgang König

Affiliation: J. W. Goethe University Frankfurt am Main

Role: Chair of Business Administration in the Institute for Information Systems

Director: Alfredo Reyes Krafft

Affiliation: Lex Informática Abogados

Role: Founding Partner and Chairman

Director: Bo Chen

Affiliation: China Computerization Corporation

Role: General Manager

Director: Nabil Al-Mubarak

Affiliation: SIMAH Rating Agency (Tassnief)

Role: Vice Chairman & CEO

Director: Elemér Terták

Affiliation: DG FISMA, 
European Commission

Role: Former Principal Adviser

Secretary: Thomas Sprecher

Affiliation: Niederer, Kraft & Frey AG

Role: Partner

Members of the Board of Directors

as of December 31, 2018

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LEI ROC Vice-Chair: Nanda S. Dave

Affiliation: Reserve Bank of India

Role: Head of the Departmentof Payment and Settlement Systems

LEI ROC Vice-Chair: Joseph Tracy

Affiliation: Federal Reserve Bank of Dallas, USA

Role: Executive Vice President and Special Advisior to the President

LEI ROC Chair: Michael Ritter

Affiliation: Deutsche Bundesbank, Germany

Role: Head of Central Credit Register

Stephan Wolf

CEO – GLEIF

Chief Executive Officer

LEI ROC Chairs

Observers

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Overview of Professional Advisors

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