One thing became clear during this month’s series of interviews with industry participants on the subject of legal entity identification standards and when reading through the responses to the Office of Financial Research’s (OFR) proposals on the subject: there is not much agreement on which way to proceed with regards to standardisation.
As I noted in my previous blog on the stats underlying the responses to the OFR’s proposals in the Fed Register at the end of last year, seven different identifiers were cited by respondents as potential legal entity IDs, with no real majority voting for any of them. The highest number of respondents cited the Swift developed Bank Identifier Code (BIC), but as that was only three responses, it can hardly be considered definitive.
The spectrum of opinion on even seemingly non-contentious issues such as whether the data collection agency underlying the OFR should be not for profit is a further indication of the challenge the regulatory community is facing in this endeavour. And that judgement is gleaned from only 30 respondents; what would it be like if the OFR had received a 100?
Of course, that is the next step. The majority of respondents did manage to agree that a standard should be global (at 21 of the 30 responses), so the US regulatory community will need to reach out to the global community in earnest, rather than in such a hasty manner.
One has to wonder whether the rather low number of responses (given the importance of the subject) is due to the fact that the OFR’s proposals were issued towards the end of the year (with little fanfare or background provided) and industry participants only had two months (during a rather long holiday period) in which to respond. Not to mention the fact that many have been distracted by other regulatory edicts coming down the pipe related to everything from high frequency trading to OTC derivatives clearing. It’s little wonder that the majority of responses ask for more clarity on the terms mentioned in the OFR proposals and more background on how they might be applied in a real world context.
But how ‘global’ will all of this work become? After all, regulators seem to consider US and Europe as representative of ‘global’ concerns, whereas markets in Asia, the Middle East, Africa and LatAm, for example, often get left out of the equation. The assumption is that the US and Europe will lead and others will follow and, to be fair, this is often the case. But could regulators learn something from the data standards used within some of the Asian markets perhaps? Let’s hope the forthcoming discussions on the subject take these considerations into account.
However, another significant development this month has been the regulatory community in the US bemoaning its funding woes, which has distracted these regulators from seriously discussing the issues surrounding legal entity IDs and many other important data standards items. One has to wonder whether this has put initiatives such as the OFR on the backburner. If the funds are not available, then surely the plans will be shelved until they are?
Much like the respondents to the OFR proposals, I think there’s a need for much more clarity on the future of the new Treasury agency and its ambitions. After all, this whole endeavour is about improving the transparency of the market. Perhaps the regulators should practice what they preach?