Global Regulatory Board Still On Board With Global Legal Entity Identifiers
The Financial Stability Board has reaffirmed its support for a 20-character identification code for business entities and says it wants a global system in place to create and distribute the codes by March 2013.
The FSB approved the new code called legal entity identifier (LEI) at a meeting in Hong Kong and will make its recommendation to the leaders of the G20 nations at a summit in Mexico on June 18 and June 19. The approval, says the FSB, is in line with the ISO 17442:2012 standard developed by the International Organization for Standardization for identifying legal entities.
The goal of the LEI is to replace the multitude of proprietary and third party codes now used by financial firms to identify themselves in communicating information on their transactions to regulators who need to monitor systemic risk. While initially promoted by the newly created US Office of Financial Research, the FSB's backing is key to ensuring global regulatory support and use. An international body, the FSB makes recommendations about the global financial system.
The FSB cited the LEI only briefly in a long statement following a two-day event in Hong Kong where finance ministry and central bank officials reviewed progress in several key areas related to global regulatory reform. Among other notable mentions: the FSB will publish a set of policy recommendations to strengthen the regulation of "shadow banking" by the end of 2012 and will soon publish a report on a proposed methodology for assessing the global systemic importance of insurance firms. That methodology, says the FSB, could be used for domestic systemically important financial institutions, otherwise called D-SIFIs. U.S. regulators are now coming up with their list of local SIFIs which would require further oversight.
The FSB's statement provided no further details on a governance structure for the LEI but has previously said it favors a federated approach with regulatory and other organizations in each market issuing LEIs for entities in their home markets. The FSB has also asked ISO to withdraw its oversight of a registration authority for the task -- a role given by the ISO to global messaging network SWIFT. However, ISO rejected the idea of SWIFT adapting the business entity identification codes it assigns called BICs to fulfill the requirement for LEIs. Depository Trust & Clearing Corp.; SWIFT and the Association of National Numbering Agencies have been tapped by a group of trade organizations led by the U.S. Securities Industry and Financial Markets Association to create some type of centralized infrastructure to distribute the LEIs.
Although it remains to be seen how the FSB will carve specific roles for DTCC, SWIFT and ANNA, the DTCC and SWIFT are quickly rising to the task. On June 1 they will launch a web portal where swap trading firms can register to receive LEIs for themselves and counterparties. The Commodity Futures Trading Commission, the U.S. derivatives oversight body, is requiring firms trading swap contracts to identify themselves using LEIs as of July 16. About 20,000 to 50,000 LEIs are expected to be used by swap traders who will be provided with a LEI within half an hour of registering after their reference information is verified by DTCC's subsidiary Avox and Kingland Systems.
Written by Chris Kentouris, Editor-in-chief (Chris can be reached at Chris.Kentouris@hotmail.com)