A Step Forward for LEI

June 13, 2012

Last week, the Financial Stability Board (FSB) and the International Organization for Standardization (ISO) took a big step in the implementation of a Legal Entity Identifier (LEI) for the financial services industry by recommending ISO 17442, a standard that is “is aimed at meeting the data collection and analysis needs of both national and global regulators in their responses to problems arising from the world financial crisis.”  (Click here for the ISO press release)  While there is agreement that the standard will both reduce risk and increase transparency, the sticking point is in how the standard will be implemented.

The FSB’s recommendation proposes a “three-tiered system, consisting of a central oversight committee, an organization to develop detailed standards and a network of national bodies to implement the rules.”  This decentralization of the registration process for LEIs could hinder timely compliance to the new standards as each local regulator will have the authority to determine whether registration for the LEI program is mandatory or voluntary for counterparties.

Without compliance, it will be difficult, to achieve the efficiency and transparency that standardization provides.  Decentralized oversight makes adherence and consistency almost impossible goals.

In an attempt to address these concerns, the FSB is working with a handful of major institutions (such as the DTCC in the US) to become early adopters of the system,  assisting with implementation of the standards to set examples for others to follow.  They have also worked to keep the cost of registration modest to minimize cost as a reason for not registering. 

As this standard has effects throughout the financial services industry, there has been no shortage of news coverage and opinion on the topic.  Here are links to a few articles I found interesting, with varying points of view on the regulatory change: FTF News’ “The LEI Standard and Global Acceptance”, Waters’ Here Comes The LEI Flood and Tom Brown’s blog: LEI: The Logical Step.

While the implementation of LEI throughout the financial services industry may take some twists and turns, it does have the backing of most in the industry and will certainly take hold in one form or another.  At PORTIA, we’re constantly monitoring regulatory changes and adapting our solutions to help asset managers operate in an ever-changing environment.  The flexibility of PORTIA is unrivaled, and we are committed to accommodating the rollout of the LEI program.  

The recommendation goes to the G-20 later this month and the assumption is that the LEI standards will go into effect next March (as targeted). It will be interesting to see if the big step forward taken by the FSB last week will be followed by the giant leap needed from the financial industry as a whole in embracing the implementation of the LEI standards.

– Bethani Hipsh, Product Manager


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