By Stephan Wolf, CEO of the Global Legal Entity Identifier Foundation (GLEIF)
In June 2014 the Financial Stability Board (FSB) reiterated that global adoption of the Legal Entity Identifier (LEI) underpins “multiple financial stability objectives” such as, for example, improved risk management in firms as well as better assessment of micro and macro prudential risks. As a result, it promotes market integrity while containing market abuse and financial fraud. Last but not least, LEI rollout “supports higher quality and accuracy of financial data overall”. In short, the LEI is a public good that provides open and reliable data for unique identification management.
The LEI is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization. It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. The reference data provides the information on a legal entity identifiable with an LEI. Simply put, the publicly available LEI data pool can be regarded as a global directory, which greatly enhances transparency in the global marketplace.
The Global LEI System is composed of three tiers:
- Regulatory Oversight Committee: A group of over 60 public authorities from more than 40 countries established in January 2013 to coordinate and oversee a worldwide framework of legal entity identification, the Global LEI System.
- Global LEI Foundation (GLEIF): Founded by the FSB in June 2014, GLEIF is a not-for-profit organization created to support the implementation and use of the LEI. GLEIF services ensure the operational integrity of the Global LEI System.
- LEI issuing organizations: LEI issuers – also referred to as Local Operating Units – supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI.
Find and use LEI data free of charge: GLEIF makes available the Global LEI Index
Normally, identification management is a time-consuming, costly and complex task; most organizations do not yet maintain a single database supplying up to date reference to existing or prospective clients, business partners and counterparties. Instead, information available to businesses is often distributed across multiple, siloed databases in a non-standardized manner.
To illustrate the point: within one organization, the compliance department might store information on a business partner using its full legal name while the treasury department lists the same entity under an acronym or its stock exchange symbol. Other information such as, for example, the business partner’s address may have been updated regularly, occasionally or not at all. This makes it difficult – or even impossible without manual intervention – to clearly identify a counterparty. The situation is exacerbated if the aim is to clarify the identity of a counterparty that one has not previously transacted with.
The publicly available LEI data pool, by contrast, is a unique key to standardized information on legal entities globally. The data is registered and regularly verified according to protocols and procedures established by the LEI Regulatory Oversight Committee.
To facilitate fast and easy access to the entire LEI population, GLEIF launched the Global LEI Index in October 2015. It provides information, updated daily, on the more than 400,000 LEIs issued to date. The Global LEI Index consists of a golden copy of all past and current LEI records including related reference data in one repository. Any interested party can easily access and search the complete LEI data pool free of charge on the GLEIF website using the web-based LEI search tool developed by GLEIF.
The drivers of the LEI initiative, that is the Group of 20, the FSB and many regulators around the world, have emphasized the need to make the LEI a broad public good. The launch of the Global LEI Index, together with the LEI search engine, greatly contributes to meeting this objective. Public authorities in any jurisdiction rely on this trusted service to evaluate risks, conduct market surveillance and take corrective steps, if required. Benefits for the private sector include reduced counterparty risk and improved operational efficiencies. Accessing the data supports a multitude of applications in, for example, risk management, compliance, client relationship management and data management.
The Global LEI Index enables, among other things:
- Clear and unique identification of legal entities participating in financial transactions, e.g. counterparty identification, by searching for an entity’s name to check its LEI and related reference data.
- Identification of client exposure through linking internal information with LEI data in the event of, for example, mergers and acquisitions or if know-your-customer utilities are purchased.
- Analysis of underlying and external exposures, e.g. reference names in collateralized debt obligations, mutual funds or vendor products.
- Onboarding of new clients, business partners and counterparties through fast access to business card information.
- Resolution of conflicts that may arise from outdated client data in global asset servicing, accounting, compliance, risk and financial reporting by mapping internal data against the Global LEI Index.
To maximize the benefits of entity identification across financial markets and beyond, firms are encouraged to engage in the process and get their own LEI. Obtaining an LEI is easy. Registrants simply contact their preferred business partner from the list of LEI issuing organizations available on the GLEIF website.
The 2016 outlook: GLEIF services continue to focus on further optimizing the quality, reliability and usability of LEI data
In cooperation with its partners in the Global LEI System, GLEIF continues to focus on further optimizing the quality, reliability and usability of LEI data empowering market participants to benefit from the wealth of information available with the LEI population.
Among other things, GLEIF is developing a data challenge process that will be available early in 2016. This process will allow data users to challenge LEI data with either GLEIF or an LEI issuing organization and use crowd sourcing to improve the data. In addition, GLEIF will regularly publish LEI data quality reports on its website.
Following a public consultation carried out by the LEI Regulatory Oversight Committee earlier this year, it is expected that in 2016 a process will be designed that allows collecting data on parents of legal entities. As a result, the global LEI data pool will provide information on ‘who owns whom’ in addition to ‘who is who’.
For more information, visit the GLEIF website at www.gleif.org.