The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Share article

By Bill Hodash and Eugene Ing, DTCC

Next year will mark a decade since the financial crisis. Since then, a wave of regulatory reforms has been implemented to increase the transparency and resiliency of the financial system, including the mandate to use legal entity identifiers (LEIs) across many jurisdictions. The goal is to ensure that global regulators, especially those charged with monitoring systemic risk, can accurately identify entities involved in financial transactions and the relationships and affiliations between them.

Next year will also mark six years since the introduction of what was formerly known as the CICI (CFTC Interim Compliant Identifier). The CICI was originally mandated by the CFTC in 2012 for regulatory reporting and record keeping prior to the availability of the global LEI. To enable the industry to comply with this requirement, the CFTC designated DTCC and SWIFT as the issuers of CICIs. The two firms jointly founded the CICI utility, the forerunner of what is known today as the Global Markets Entity Identifier Utility (GMEI utility). This was among the first of more than 30 Local Operating Units (LOUs) worldwide to have been established under the Global LEI System (GLEIS).

Legal entity identifiers

In the following years, the industry and regulatory communities have come a long way, and today, policymakers across the world acknowledge the importance of making the identification of counterparties mandatory for many global regulations beyond those related to derivatives reporting. As such, the number of LEIs issued has grown significantly to over 700,000 globally. The GMEI utility, which operates as the largest globally accredited LOU, has issued nearly 300,000 LEIs to date.

In Europe, Markets in Financial Instruments Directive II (MiFID) II, which will be implemented in January 2018, has mandated the use of the LEI as a requirement for trading and transaction reporting. For some legal entities, this will be the first time they’ve come under the purview of financial market regulations related to LEIs. In fact, the European Securities and Markets Authority (ESMA) recently issued clear guidance advising that any legal entities, regardless of where they are domiciled, must obtain an LEI if they plan to trade directly in Europe. This makes it paramount for firms to be proactive in acquiring an LEI to avoid compliance risk and to minimise the potential for delays to occur in acquiring their LEI due to any backlogs.

Data quality

However, firms must remain cognisant of the quality of the reference data underpinning their new LEI. In other words, not all LEIs are created the same, and choosing expediency over quality could negatively impact the regulator’s ability to perform systemic risk analysis. Data quality is the linchpin of the system, and the LOUs that a firm chooses to work with is essential because the provider must be relied upon to validate the accuracy of the LEI reference data accompanying the LEI record at time of registration and whenever information about that legal entity changes.

It is also the responsibility of the LOU to work with market participants and the Global Legal Entity Identifier Foundation (GLEIF) to continuously optimise the quality, reliability and usability of the LEI and associated reference data in meeting the LEI’s purpose: improving systemic risk analysis. By doing so, not only will market participants’ operational costs be reduced, but also they can have peace of mind that they can comply from day one with the MiFID II requirements.

For regulators, the LEI is a key enabler to ensuring the soundness of the global financial system by allowing them to quickly and consistently identify counterparties to financial transactions and to more accurately aggregate risk exposure across asset classes, geographies and affiliates of legal entities.

As one of the original LOUs, we have been working for many years with the industry and supervisors to improve entity reference data quality. Our foremost priority has been to make the necessary investments in processes to validate the accuracy of reference data before and after it’s published. Our experience tells us that quality LEI registration and renewal takes more time than it would to just simply accept a registrant’s data and publish it out to the world. We’ve made a commitment to quality because there is too much at stake if LOUs fail to fully validate the accuracy of the data and continually invest in improving validation processes.

Leave a comment

Your email address will not be published. Required fields are marked *

*

Related content

WEBINAR

Recorded Webinar: Privacy vs. Surveillance: Managing conflicting regulations in Germany and other privacy-sensitive jurisdictions

The EU’s MiFID II and other regulations globally have placed greater emphasis than ever on market surveillance, recording of trading communications and records-retention processes in an attempt to stamp out market abuse and boost investor confidence and protections. At the same time, the public’s attitude toward data privacy has hardened, most visibly through new regulations...

BLOG

A-Team RegTech Summit Emphasises Urgency of Efficient, Enterprise-Wide Compliance

A-Team Group’s RegTech Summit made a triumphant return to a full house in New York last Thursday, with an excellent turnout of over 230 practitioners, regulators, start-ups and solution providers all keen to explore how the financial services industry can best leverage technology to drive innovation, cut costs and support regulatory change. Colin Ware, Global...

EVENT

Data Management Summit New York City

Now in its 8th year, the Data Management Summit (DMS) in NYC explores the shift to the new world where data is redefining the operating model and firms are seeking to unlock value via data transformation projects for enterprise gain and competitive edge.

GUIDE

Regulatory Data Handbook 2019/2020 – Seventh Edition

Welcome to A-Team Group’s best read handbook, the Regulatory Data Handbook, which is now in its seventh edition and continues to grow in terms of the number of regulations covered, the detail of each regulation and the impact that all the rules and regulations will have on data and data management at your institution. This...