LEI – how many expert groups does it take to identify an entity?

With the latest progress note from the Financial Stability Board (FSB) on the Global Legal Entity Identifier (LEI) Initiative published last week, it’s a good time to look at the basics.

In June 2012, with the backing of the G20, the FSB was tasked with driving forward the LEI initiative to create a universal numbering system to uniquely identify parties to financial transactions.

The initiative promises to deliver a global registry of unique identification numbers – 20 characters (18 alphanumeric + 2 numeric) to ISO standard 17442. And in addition to the minimum entity data, such as name and address, there are plans to extend entity identification to reflect ownership and hierarchies between entities allowing the LEI to be used to support risk aggregation and consolidation.

Born out of the financial crisis the regulators want the LEI to:
• improve crisis reporting
• improve sanction monitoring
• provide a holistic view of counterparty and issuer risks
• ease data aggregation, modelling and analysis
• better service firms operating cross-border and firms overseen by multiple regulators.

The use of the LEI promises firms stronger risk controls as a result of improvements in data clean-up and mapping functions.

Collaboration is on-going and a governance structure is emerging with a Regulatory Oversight Committee (ROC), Central Operating Unit (COU) and Local Operating Units in a federal model.

The FSB is tasked with devising a global infrastructure by March 2013 so the deadlines are tight. Already the DTCC, in partnership with SWIFT (assisted by the Association of National Numbering Agencies, or ANNA) is a potential front runner for the role of COU (or LOU in the US) having launched their portal in August for assigning CFTC interim compliant identifiers (CICIs). This portal utility will ultimately comply with the global LEI framework but codes were required now by swap dealers and major swap participants for the US swap reporting and record-keeping rules that come into effect in October. Other current contenders for managing LEIs are CUSIP Global Services, a heavyweight in issuer and securities identification, and Financial InterGroup (FIG) who propose a logical centralised global database of local LEI registries.

There is a big showdown scheduled for October 2012 in Basel where the FSB is hosting a demonstration day for nominations for a Global LEI System Operation Solution.

Wonder what the prize will be?

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