A consortium of trade associations led by the U.S. Securities Industry and Financial Markets Association is offering financial firms some help in figuring out how to configure their internal applications to accommodate a new global legal entity identification code called the LEI.

The Global Financial Markets Association has just published a test file of about 2,700 identification codes along with a brief description of the entities and the metadata needed for firms to store the information and cross -reference the codes with their internal "dummy" and other third party codes. The entities selected, say GFMA officials, represent firms active in the swaps market which will be required to file reports with the Commodity Futures Trading Commission. It is expected that swaps dealers will be the first to be allocated the new ID codes.

"The GFMA is trying to ensure that member firms and other financial market participants can evaluate, understand and test the operational implications for their businesses," says David Strongin, managing director of SIFMA who also serves as one of the trade group's pointmen on LEI implementation. The codes and additional metadata were developed by Avox, a subsidiary of the U.S.' Depository Trust & Clearing Corp. and the Society for Worldwide Interbank Financial Telecommunications. The New York headquartered umbrella organization for clearing and settling U.S. securities transactions and the global messaging network provider have been tapped to create the utility designated with issuing and distributing the LEIs.

In describing the test file, the GFMA is pretty explicit in warning firms tht the information is meant to be illustrative and the two organizations take no responsibility for its accuracy, even though they made a good effort to validate the information. A copy of the test file is available through
A copy of the test file is available through http:/www.sifma.org/legal-entity-identifier-test-file-download.

The GFMA, which includes the Association of Financial Markets in Europe, and the Asia Securities Industry and Financial Markets Association, has been spearheading the global effort to create some global standards for the data formats of the LEI as well as the operating and governing terms of the utility which will create and issue the LEIs. The umbrella group came out with its recommendations in July 2011 with the goal of ensuring worldwide acceptance for the new identification code, which was initially promoted by the U.S.Office of Financial Research over a year ago as a way for the U.S. government to keep track of the firms which buy and trade securities. Since then the International Organization for Standardization has accredited the LEI as a standard and the Financial Stability Board has created a task force to promote the use of LEIs globally. Financial firms typically use several ID codes to identify legal entities- their customers and counterparties. They may assign their own codes and depend on third-party codes of which the BICs offered by SWIFT are the most popular.

While regulatory agencies sort out a high level consensus, financial firms are eager to kick off their preparations in understanding how the LEI will impact their reference data systems and how it will ripple downstream to reporting systems. Some firms are using the adoption of the LEI to take a harder look at their data quality and governance practices tgo ensure the correct checks and balances are in place. The impact of the LEI will likely vary depending on a firm's approach to reference data. Firms which have strong internal controls are likely to find it a lot easier than those who have to start from scratch. Although the LEIs will be used in regulatory reports no one expects them to completely replace the current hodgepodge of IDs.

Written by Chris Kentouris, Editor-in-chief. (Chris can be contacted through Chris.Kentouris@hotmail.com)

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