Investment Operations

FIG Analyzes Industry Responses to FSB’s Thematic Review of the Legal Entity Identifier

The Financial Stability Board has reached out to both its own members and industry members in a review of the global legal entity identifier, a project of significance to the future of financial information systems, Regulatory mandating of regulatory reporting and systemic risk analysis.

This report is focused on the first pillar of the review, industry members’ responses to the benefits and challenges in implementing the legal entity identifier. The other two pillars, expert groups convened to discuss the same, and a survey of those entities overseen by Financial Stability Board member organizations are in progress with a final report due in May, 2019.

In this report, Financial InterGroup has summarized each response and linked each summary to their actual public responses. They have also summarized their overall impression of what these responses are conveying to the Financial Stability Board in meeting its objectives for “global adoption of the LEI to support authorities and market participants in identifying and managing financial risks.” Highlights of that summary follows:

  • The benefits to date to industry respondents of use of the LEI is found in the small improvements of the manual process of looking up and verifying entities against separately maintained internal databases. However, operational efficiencies will remain muted as long as mapping to other identifiers remains the mainstay of interoperability.
  • Needed universal adoption is a shared opinion of what is required to meet both regulators systemic risk objectives and industry members operational cost reduction objectives. Universal adoption will require a long term effort – at 1.4 million LEIs registered currently, it is far from the projected 40 million LEIs that the Global LEI Foundation (GLEIF) has reported is needed.
  • Hierarchical relationship data is a work-in-progress. Its importance as a risk management tool is anticipated, but it is too early to identify its real-world usefulness for industry members or regulators.
  • Costs to obtain an LEI, regardless of how low they may be thought of now, are too high when compared to the zero costs of other identifiers.
  • Timely renewals of LEIs should be coordinated with timely legal entity events lest the LEI database falls out of synch with changes occurring in individual vendor and financial institution databases.
  • Regulatory mandates, for initial LEI registrations and renewals is essential to increase participation rates and maintain the quality of the LEI. Renewal of LEI reference data is seen by the GLEIF as the quality differentiator from all other entity identifiers.
  • Smaller financial participants do not agree that the LEI should be mandatory nor that it be used in all financial market interactions.
  • Some trade associations want more participation of intermediaries in registering LEIs. FIG argues for reinforcing self-registration through ‘at-source’ auditor assurance.
  • Some respondents have identified the Blockchain, in particular the distributed ledger, as a promising technology for consideration. Toward this end, the GLEIF has announced the ‘GLEIs 2.0’ project where, amongst other initiatives, a Blockchain prototype for sole-proprietor financial business entities is to be developed.

To download the full report, click here.