In April 2018, the Global Legal Entity Identifier Foundation (GLEIF) published its latest annual report (see ‘related links’ below), which highlights: the status of GLEIF operations; the statements of financial condition; and the independent auditor’s report for the period from 1 January to 31 December 2017.
It also outlines how we continuously increase the information available within the Legal Entity Identifier (LEI) data pool, achieve data quality, and make it ever easier for data users to access information. In addition, the report offers an outlook on GLEIF initiatives designed to ensure that the LEI remains the industry standard best suited to providing open and reliable data for unique legal entity identification in the digital age.
Sources offering further background information on the topics mentioned in this blog post are included in the ‘related links’ below.
Financial statements
In 2017, GLEIF generated a gross revenue of US$ 7.9 million with a net surplus of US$ 252.9 thousand that will be added to the retained surplus of the organization. The financial result is in line with the objectives of GLEIF as a not-for-profit organization. The LEI fee for LEI issuers was maintained at US$ 19 for the approved budget 2017. (GLEIF makes all its services to users available free of charge. In 2018, the foundation receives US$ 17 per issued or renewed LEI from the LEI issuers.; i.e. the organizations that supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI.)
LEI growth
In 2017, the LEI population nearly doubled to approximately 953,000 LEIs. (As of mid-April 2018, more than 1.1 million LEIs have been issued to legal entities globally.) Of the almost 500,000 LEIs issued in 2017, 77 percent were issued in the fourth quarter. We attribute this high growth rate observed in 2017 primarily to impacted market participants seeking to achieve compliance with the revised EU Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR), which took effect on 3 January 2018. According to MiFIR, investment firms should obtain LEIs from their clients before providing services which would trigger related reporting obligations. The European Securities and Markets Authority (ESMA) had stressed that it expected “market participants to take all necessary steps to ensure full compliance with the LEI requirements under MiFID II”. (On 20 December 2017, ESMA communicated that it allows “for a temporary period of six months that investment firms may provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf.”)
The extraordinary growth managed in the fourth quarter of 2017 demonstrates the robustness of the Global LEI System and the strong capabilities built by the LEI issuing organizations to handle a massive surge in LEI registrations. This is further substantiated by the very high level of data quality maintained throughout the reporting period as demonstrated with the data quality reports published monthly by GLEIF.
Accreditation of LEI issuers
In its role as accreditation agency, GLEIF evaluates the suitability of organizations seeking to operate as issuers of LEIs (also referenced as ‘Local Operating Units’). By the end of 2017, the GLEIF Board of Directors approved the awarding of in total 20 LEI issuers with GLEIF accreditation certificates. All those organizations have passed a rigorous accreditation process in order to be prepared to deliver high-quality services to its users. Achieving this accreditation target led to the finalization of the interim system by which Local Operating Units previously endorsed by the LEI Regulatory Oversight Committee (LEI ROC), have now become fully accredited LEI issuers. We are pleased to see a growing number of LEI issuers interested in joining the Global LEI System, thus enforcing competition to the benefit of registrants.
Expansion of GLEIF services: Connect the corporate dots globally
GLEIF enables people and businesses to make smarter, less costly and more reliable decisions about who to do business with. To achieve this objective, GLEIF continuously increases the information available within the LEI data pool and makes it ever easier to access the information. We do this so data users are able to connect the corporate dots globally.
Increased information: GLEIF makes available the Global LEI Index. It contains historical and current LEI records – including related reference data – in one authoritative, central repository. This is the largest online source that provides open, standardized and high quality legal entity reference data with the potential to capture any entity engaging in financial transactions globally. In May 2017, we began the process of enriching our data pool with relationship data of direct and ultimate parents. Once parent information for the entire LEI population is available, GLEIF will provide a unique and free data source that allows corporate dots to be connected globally based on open, standardized and high quality LEI data.
Continuous improvement of data quality: In cooperation with its partners in the Global LEI System, GLEIF focuses on optimizing the quality, reliability and usability of LEI data. This empowers market participants to benefit from the wealth of information available within the LEI population. A key feature that distinguishes the LEI from other, proprietary entity identifiers, is that we provide complete transparency regarding the level of data quality achieved. The monthly Global LEI Data Quality Reports demonstrate the overall level of data quality achieved in the Global LEI System. In January 2017, we introduced, in addition, the LEI Issuer Data Quality Reports, which analyze the level of data quality achieved by the individual LEI issuing organizations. Strong data quality management and an assurance mechanism supported by the right technology will further mitigate risks to the benefit of our users.
Easy access: One of GLEIF’s key responsibilities is to provide access to the full global LEI repository, free of charge to users, via an open data license. To this end, we are working towards making it ever easier for data users to retrieve the information they need. In September 2017, we launched the GLEIF LEI ‘Look-up’ API. It allows developers to directly access the complete LEI data pool in real time, to enable on-demand checks for changes to specific LEI records. The application will continue to evolve based on feedback received from stakeholders.
Creating business value with the LEI
McKinsey & Company has been working with GLEIF to examine the potential use cases of the LEI in streamlining entity verification processes. The white paper, titled ‘The Legal Entity Identifier: The Value of the Unique Counterparty ID’, was jointly published by McKinsey & Company and GLEIF in October 2017. McKinsey estimates that broader, global adoption of the LEI could yield, among other things, savings in excess of 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 percent of total operational costs for onboarding clients and trading processing through the use of LEIs.
The research project further indicates that, by introducing the LEI into almost any process that requires identification and verification of a counterparty, and which has a manual component, the wider business community can benefit from numerous advantages. These include: operational efficiencies, cost savings, reduction of time to transact with clients, and the collation of more reliable information. There is also a lot of potential to increase the accuracy of risk data aggregation for risk management, support improved due diligence for know your customer (KYC), client onboarding and anti-money-laundering (AML), and later provide strategic marketing information about which entities are driving revenue.
For these reasons, we are seeing a widened scope of LEI use for businesses beyond the derivatives markets, notably for the capital and money markets, banking services, supply chain management and digital economy.
Innovative entity identification in the digital age
Our goal remains to find innovative solutions and respond to the demands of the digital age and fast-moving technology developments. The process of being able to identify counterparties more easily will open the door to further automation and digitalization across financial and commercial transactions globally. For this reason, we launched a research project for the digital economy for embedding LEIs in digital certificates. We expect to publish the results later this year.
We look forward to continuing our engagement with representatives from the private and public sectors to foster value creation by providing one true digital identity behind any business.
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Gerard Hartsink was appointed by the Financial Stability Board as Chairman of the GLEIF Board. The profiles of Gerard Hartsink and all other members of the GLEIF Board of Directors are available on the GLEIF website.
