Legal Entity Identifier News: January 2019 Update

Global Legal Entity Identifier Foundation provides an overview of the latest global developments relevant to Legal Entity Identifier adoption

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To make it easy for stakeholders to follow developments relevant to Legal Entity Identifier (LEI) rollout around the world, the Global Legal Entity Identifier Foundation (GLEIF) provides related updates via its blog.

This post summarizes LEI news tracked from English language sources since September 2018 and focuses on strong endorsements for the LEI, together with calls for broad LEI adoption from regulatory bodies across the globe.

Sources cited in this blog are included in the ‘related links’ below.

President of the European Central Bank cites LEI as foundation for greater global standardization

In January 2019, in his introductory statement at the Hearing before the Committee on Economic and Monetary Affairs of the European Parliament, Mario Draghi, President of the European Central Bank (ECB) and Chair of the European Systemic Risk Board (ESRB), highlighted the need to build on the LEI in pursuit of global standardization. A “challenge ahead of us is related to monitoring the financial system, which requires us to have access to high-quality, detailed and granular transactions data,” he said. “To have the full picture, it is vitally important that we can link data across markets, instruments and counterparties. Our experience in analysing derivatives data that have become available through EMIR [European Market Infrastructure Regulation] highlights the importance of greater data standardisation, including at the global level, building on the successful use of the Legal Entity Identifier. It also shows that policymakers need to invest in adequate infrastructure and analytical tools.”

Financial Stability Board (FSB) Chair’s letter to G20 Leaders meeting in Buenos Aires: Harnessing the benefits of new financial technologies including LEI

On 26 November 2018, Mark Carney, Governor of the Bank of England who has chaired the Financial Stability Board (FSB) since 2011, wrote to the leaders of the Group of 20 (G20) on behalf of the FSB to report on “…the progress made during 2018 and (…) the main issues which require the attention of G20 Leaders.” In a paragraph titled “Harnessing the benefits of new financial technologies while containing the risks” he wrote: “More generally, the FSB and standard-setting bodies are exploring how a broad range of innovations—including distributed ledger technology, the global legal entity identifier (LEI), artificial intelligence and various payments technologies—could promote financial stability while bringing wider benefits to consumers and businesses.” (On 2 December 2018, Randal K. Quarles, Governor and Vice Chairman for Supervision at the U.S. Federal Reserve, succeeded Mr. Carney as FSB Chair.) Created in 2009, the FSB is an international body that monitors and makes recommendations about the global financial system. The FSB is the founder of GLEIF.

FSB calls for increased global LEI adoption in G20 Data Gaps Initiative

The FSB’s ‘Third Progress Report on the Second Phase of the G20 Data Gaps Initiative’, published in September 2018, emphasized that the “uses of the LEI continue to increase across different jurisdictions (…) Also the improvement of statistics on the cross-border exposures of non-bank corporations benefited from LEI developments: the OECD has recently started to develop the Analytical Database on Individual Multinationals and their Affiliates, which relies on a variety of sources, including LEI relationship data. (…) For details see GLEIF Concatenated Files.” The report also noted that “close cross-check with other relevant initiatives such as measurement of the digital economy, use of Big Data for policymaking, enhancement of the public debt transparency, adherence to the Special Data Dissemination Standard Plus, and promotion of the Global Legal Entity Identifier, will continue.”

FSB Regional Consultative Group for Asia cites LEI among potential solutions to aid access to trade finance

In November 2018, the FSB Regional Consultative Group (RCG) for Asia met at the Reserve Bank of Australia to discuss, among other issues, access to trade finance. The FSB’s media statement recapping the meeting reported that members “received presentations that suggest that the perception of country risk, counterparty risk, anti-money laundering and know-your-customer requirements, and capital costs that do not fully reflect the risk characteristics of trade finance were possible impediments. Potential solutions include digital technologies, capacity development, training, and adoption of the Legal Entity Identifier.”

FSB OTC Derivatives Market Reforms Thirteenth Progress Report on Implementation highlights LEI use across jurisdictions

Also in November 2018, the FSB’s ‘Thirteenth Progress Report on the Implementation of OTC Derivatives Market Reforms’ was published, reporting good overall progress on its reform agenda. With reference to the LEI, the report states that: “the LEI, which provides verified data on legal entities, is now referenced or required in the rules of some 45 jurisdictions, of which 16 are FSB member jurisdictions. (…) The EU reports that EU counterparties face challenges using the LEI to identify counterparties outside of the EU, because there are still counterparties in other jurisdictions which do not have an LEI. To some extent, this may be a transitional issue as more jurisdictions and market participants consider use of the LEI.”

FSB action plan to assess and address the decline in correspondent banking - Progress report to G20 Summit addresses option to use LEI to identify originator and beneficiaries of wire transfers

The LEI was again referenced by the FSB in November, in the ‘Action plan to assess and address the decline in correspondent banking - Progress report to G20 Summit of November 2018’. Among other issues, the report details the actions taken to strengthen tools for due diligence by correspondent banks. It states that further progress has been made concerning the LEI, “with total issued LEIs exceeding 1.3 million, the collection in less than 18 months of information on 140,000 relationships between a subsidiary and their parent entities, and a decrease in LEI prices, which will facilitate the effective use of the LEI to reduce costs and increase efficiency for the processing of wire transfers.” When reporting on next steps to ensure national authorities and banks implement solutions designed by international standards bodies the report states that the Correspondent Banking Coordination Group (CBCG) “will explore whether further encouragement could facilitate the effective implementation of the option to use the LEI to identify originator and beneficiaries of wire transfers. This would support trust between banks involved in the same payment chain, as well as reduce the costs and increase the reliability of sanction screening. The objective would be implementation at the latest by 2021, when payment messages are expected to move to the new ISO 20022 standard.” The Committee on Payments and Market Infrastructures (CPMI) “will also monitor the implementation of ISO 20022 and the use of the LEI option.”

FSB Fourth Annual Report on the Implementation and Effects of the G20 Financial Regulatory Reforms: Broad LEI adoption essential to fully reap its collective benefits

“Ten years after the crisis, the new regulatory framework is largely in place” states the FSB in its ‘Fourth Annual Report on the Implementation and Effects of the G20 Regulatory Reforms’, also published in November. The report also highlights that it is necessary to expand LEI utilization globally if its full potential is to be realized: “Additional uses are contemplated, such as in the area of correspondent banking. Further adoption of the LEI by legal entities worldwide and its use by authorities for regulatory purposes are essential to fully reap its collective benefits.”

FSB report following the LEI thematic peer review expected before July 2019

This encouraging collection of references detailing the FSB’s actions to endorse and promote LEI adoption concludes with a notification that the FSB’s report on the thematic peer review on LEI implementation is expected to be published in the first half of 2019.

Inter-American Development Bank reports on innovative approaches to promote anti-corruption, transparency and integrity in Latin America and the Caribbean

To mark International Corruption Day on 9 December 2018, the Inter-American Development Bank (IADB) published the ‘Report of the Expert Advisory Group on Anti-Corruption, Transparency, and Integrity in Latin America and the Caribbean.’ Forbes described the report as “important, practical and prescriptive (…) with recommendations for every sector of society from government to individuals on innovative and effective approaches to combatting corruption”. Reflecting the report’s content, Forbes contends that open data “is as much a policy as a technology solution. In order to have access to more and higher quality data to analyze, governments should comply with international standards for how to publish open data about government contracts, including the open contracting data standard and use the Global Legal Entity Identifier to make it easier to compare records about companies and their activities across different government databases.” 

Asian Development Bank: How LEIs will transform small business in Asia

In August 2018, Janet Hyde, an investment specialist at the Asian Development Bank published a blog post titled ‘How LEIs will transform small business in Asia’, in which she explained how the LEI will help businesses grow, as well as facilitate their access to credit. “For a start, the GLEIF search capability enables companies to source and evaluate new buyers and sellers in target markets, encouraging them to expand their businesses with greater confidence” she writes. “Building such databases also helps large organizations to seek out new companies to transact with, including SMEs. This in turn creates more business opportunities for these companies which are already willing and able to participate in Asia’s supply chains.”

Hyde acknowledges that the “LEI would need to be adopted by all entities, not just financial institutions and trading companies: government departments and agencies, company, land and share registries, tax offices, sanctions lists, anti-money-laundering and know-your-customer directories, as well as auditors. Only then can truly comprehensive and meaningful portfolios of information be successfully constructed.” She concludes: “With widespread adoption, the LEI will enable communication across different platforms since there will be one standard that all market participants can agree upon supporting the entire life cycle of transactions.”

U.K.: Bank of England (BoE) champions the use of LEIs, both within the financial services industry and across all sectors of the economy

In a speech given by Dave Ramsden, the BoE’s Deputy Governor for Markets and Banking, at the ISO 20022 Conference in December 2018, he championed the use of LEIs, both within the financial services industry and across all sectors of the economy, including corporates. Following an explanation of the importance of international data standards in the payments chain, Ramsden highlights that his speech focuses on two in particular: “ISO 20022 and how we plan to implement it for payments in the UK, and also ISO 17442, more commonly known as the Legal Entity Identifier – an important tool that can be carried within an ISO 20022 payments message.”

Ramsden continues by noting that a limitation on the opportunities for future improvement within financial systems is the heavy burden of identification for both banks and businesses. He acknowledges that: “A single, universally recognised identifier could dramatically improve the speed and efficiency of identification”. He continues: “The LEI has particular features: it is a unique identifier, requires annual verification, carries useful information about company structure, and is a globally recognised ISO standard. The Bank believes it has all the right ingredients to deliver much wider benefits for end users – raising efficiency, competition and productivity. Beyond the financial sector LEIs have the potential to be a transformative building block for the real economy.”

He adds: “With the LEI as a critical building block, technology holds the promise of delivering efficiencies for end users of the financial system. Rapid identification will enable efficient know-your-customer (KYC) and on-boarding processes. Given the complexities of cross-border transactions, it could unlock substantial efficiencies for importers and exporters. And, it could one day enable a business to build up its own credit data file and use it to shop around for the best products, much like we do as individuals. Our work suggests that a widely recognised and unique digital identifier for all businesses is foundational to delivering that future vision. Because of the benefits the Bank sees in LEIs, our consultation response outlined that we will make them a mandatory feature of transactions between financial institutions in CHAPS [Clearing House Automated Payment System]. But in order to unlock the LEI’s full potential we need to encourage the adoption of LEIs amongst all those who use payment messages, not just within the financial services industry, but in all sectors of the economy, including corporates.”

U.S. Office of Financial Research’s Annual Report to Congress 2018 details OFR’s data initiative relevant to LEI

In its ‘Annual Report to Congress 2018’, published in November, the U.S. Office of Financial Research (OFR) discusses, among other things, the OFR’s data initiatives, including a proposed rule to collect data on cleared bilateral repurchase agreements, or repos, an important source of short-term funding in the financial system. The proposed repo rule “would require all counterparties and intermediaries to obtain LEIs.”

U.S. Financial Stability Oversight Council Annual Report 2018: Broader LEI adoption remains priority

The Financial Stability Oversight Council (FSOC), part of the U.S. Department of the Treasury, is responsible for identifying risks to financial stability, promoting market discipline and responding to emerging risks to the stability of the U.S. financial system. Under the Data Quality, Collection and Sharing section of the ‘FSOC Annual Report 2018’, the Council states that broader adoption of the LEI by financial market participants “continues to be a Council priority. The LEI enables unique and transparent identification of legal entities participating in financial transactions. To facilitate the broad adoption of the LEI, the Council recommends that, where appropriate, member agencies move to adopt the use of the LEI in regulatory reporting and other data collections. The Council recommends that member agencies update their regulatory mortgage data collections to include LEI and Universal Loan Identifier (ULI) fields, which will make it possible to track loan records through a loan’s life cycle.”

GLEIF calls on governments across the globe to consider migrating to standardized entity identification based on the LEI

In September 2018, GLEIF published a joint GLEIF and Data Foundation research report titled ‘Envisioning Comprehensive Entity Identification for the U.S. Federal Government’. GLEIF and the U.S.-based Data Foundation joined forces to explore how LEI adoption by U.S. federal agencies could streamline entity identification and produce benefits within and beyond financial markets.

GLEIF emphasizes that the findings in this research report may serve to inform regulators in jurisdictions other than the U.S. where public authorities continue to rely on a multitude of identification regimes, some being proprietary.

The joint GLEIF and Data Foundation research report:

• Explores the current landscape of U.S. federal agencies’ entity identification needs and describes the entity identification system that each uses.
• Compares the Global LEI System to the other systems currently in use in the U.S.
• Identifies how U.S. federal agencies would benefit from replacing proprietary or internal identifiers with the LEI.
• Proposes factors that describe the feasibility of a particular U.S. entity identification system to convert to a comprehensive entity identification system built on the LEI or, alternatively, the value of mapping existing identifiers against the LEI.

The LEI responds to the critical need for a universal system of identifying entities across markets, products, and regions. Broad LEI adoption and the resulting access to open, standardized and high quality reference data available via the Global LEI Index will allow all stakeholders in any country to improve interoperability and interconnectedness.

Citing the progress report published by the LEI Regulatory Oversight Committee (LEI ROC) in April 2018, the GLEIF and Data Foundation paper asserts that adoption of an LEI strategy by governments around the world could “help overcome the existence of several domestic identifiers covering different types of entities” and “allow countries to leverage the infrastructure developed by the [Global LEI System]”. The LEI ROC, representing public authorities from around the globe that are together committed to increasing transparency in financial markets, recommends that “each individual jurisdiction consider adopting an LEI strategy that meets their needs.”

Global LEI System standards: Latest publications issued by the LEI Regulatory Oversight Committee

In October 2018, the LEI Regulatory Oversight Committee (LEI ROC) published a final policy document which sets forth its policy for incorporating legal entity events and data history in the Global LEI System. The policy was informed by a public consultation in 2017 and a subsequent workshop in 2018. In addition to clearly presenting the features of the policy, which are concisely outlined in the Executive Summary, the document concludes that a cooperative approach should be taken to develop an optimal implementation priority and timeline for this policy on incorporating legal entity event data into the Global LEI System. It also suggests that “what remains to be finalised belongs to the area of technical standards which are the responsibility of the GLEIF (e.g., how to represent effective dates, and whether and how to reflect range of definitions of effective dates, depending on local legislations) and the role of GLEIF of consulting LOUs and industry on the most cost-effective way for implementing ROC policies. Workshops, further consultations, and pilot projects may be used as implementation proceeds.”

In November 2018, the LEI ROC published its ‘Second Consultation Document on Fund Relationships in the Global LEI System’. The report “proposes a limited update to the way relationships affecting funds are recorded in the Global LEI System (GLEIS), with the objectives of making sure that the implementation of relationship data is consistent throughout the GLEIS and providing a means to facilitate a standardized collection of fund relationship information at the global level.” The LEI ROC’s Committee on Evaluation and Standards (CES) developed this consultation document, to seek public input on the design of a process for collecting data on the relationships of funds within the Global LEI System. Responses to a questionnaire annexed to this document were invited by 14 January 2019. They will inform the final version of the policy framework that the LEI ROC will approve for eventual implementation by GLEIF, which will not be before January 2020.

Elsewhere in the world, a number of positive developments indicate continued momentum towards mandated LEI usage within the wider financial services ecosystem. GLEIF makes available an overview of the current and proposed regulatory activities including the use of the LEI on its website (see ‘related links’ below.)

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