The Legal Entity Identifier (LEI) is forecast to pass the 1.5 million mark of active identifiers in the fourth quarter of this year, another landmark for the LEI, which has seen relatively slow adoption despite capital markets participants’ calls for data standards.
The fourth quarter forecast is made in the Global LEI Foundation’s (GLEIF’s) second quarter 2019 Global LEI System Business Report. The report shows end Q2 active LEIs at just over 1.4 million following the issuance of about 47,000 LEIs in the period, down from 53,000 in Q1, and representing a quarterly growth rate of 3.4%. The GLEIF forecast for Q3 suggests active LEIs at 1.46 million and for Q4 1.51 million.
While the number of issued LEIs is growing, equally important to the development of the standard is the renewal rate, which was initially poor and questioned the value of the identifier. More recently, renewals, which ensure the legal entity and the LEI issuing organisation review and revalidate the legal entity reference data at least once a year, have improved and stabilised, with the Q2 report showing a renewal rate of 70.5%, essentially unchanged compared to the previous quarter at 70.8%.
Barriers to creating a global standard remain, however, with the renewal rate in Europe remaining stable at 73.1%, but in non-EU jurisdictions rising only slightly to reach 60.3%. The offenders in terms of the highest non-renewal rates in Q2 were Brazil, the US, the Russian Federation, the UK and South Africa, suggesting that growing acceptance and use of the LEI on a global basis will be hampered without increased commitment to the standard in these jurisdictions.
The Q2 report also identifies stability in the percentage of fully corroborated Level 1 reference data within the entire LEI population, which increased slightly to 79.4% from 78.8% in the previous quarter.
Looking at LEI hierarchy data, during the quarter approximately 1.25 million LEI registrants, representing 89% of the total LEI population, had reported information on direct and ultimate parents. Some 99.9% of LEI registrants that obtained a newly issued LEI or renewed an existing LEI in the quarter reported parent information. The percentage of legal entities reporting a direct parent that has an LEI remained stable at 7% and the share of legal entities reporting a direct parent that does not have an LEI decreased by 1%, from 6% to 5%. Some 8% of legal entities reported an ultimate parent that has an LEI, up 1% on the previous quarter, with the percentage of legal entities reporting an ultimate parent that does not have an LEI remaining stable at 5%.
Thanks for sharing these details. Its great insights. Can someone also throw in some light on what can we expect in terms of the additional LEIs? Are these new regional LOUs or any new market expansions?
Indeed. Are there any projections of how many new LEIs could be needed to support SFTR over the next eight months or so?
We have noted some industry analyses indicating approximately 140.000 LEIs could be issued. This would include LEIs also for entities outside the EU as required to comply with the SFTR reporting guidelines.
LEI growth in Asia-Pacific will be mainly triggered by the regulatory requirements in India in 2020. All non-derivatives market participants, other than individuals, will need to obtain an LEI for being able to undertake transactions in these financial markets after the due date. Reserve Bank of India extended the deadline for large market participants (net worth bigger than Rs.2000 million) to obtain an LEI until the end of December 31, 2019. This would be the first and second phase of the implementation. The third phase of the implementation will be completed for mandating the LEI for legal entities with a net worth up to Rs.2000 million by March 31, 2020. In addition, Reserve Bank of India plans to increase the LEI usage for large value cross border payments under “Payment and Settlement Systems in India: Vision – 2019-2021”.
In North America, the Investment Industry Regulatory Organization of Canada has mandated for LEI Debt securities (institutional customers) and Equity Securities (clients supervised under DMR 2700, direct electronic access clients, routing arrangement clients, OEO clients) in a phased manner. Accordingly, LEI will become mandatory for institutional customers by 18 October 2019. For Direct Electronic Access (DEA) clients, identified order execution only clients (whose trading activity on marketplaces for which the Market Regulator is the regulation services provider exceeds a daily average of 500 orders per trading day in any calendar month and not an individual), Routing Arrangement (RA) clients need to submit their LEI by 18 October 2020. All other clients supervised as an institutional client at the Dealer Member need to obtain an LEI by 18 April 2021. If a client does not obtain an LEI according to the requirement, the Dealer Member must stop trading for the client.
Finally, in the European Union, the Securities Financing Transactions Regulation (SFTR) will require LEI for relevant market participants. Reporting of LEI is becoming mandatory by all market participants, whether they are financial or non-financial entities. LEI code shall be used to identify the following: (a) a beneficiary which is a legal entity; (b) a broking entity; (c) a central counterparty (‘CCP’) authorized in accordance with Regulation (EU) No 648/2012; (d) a clearing member; (e) an agent lender; (f) a central securities depository (‘CSD’) participant; (g) a counterparty which is a legal entity; (h) a tri-party agent; (i) a report submitting entity; (j) an issuer of a security which was lent, borrowed or provided as collateral in a SFT. A counterparty to an SFT shall ensure that the reference data related to its ISO 17442 LEI code is renewed in accordance with the terms of any of the accredited Local Operating Units of the Global LEI System. The reporting obligation will start in June 2020 for investment firms and credit institutions. For central counterparties, the reporting obligation starts in September 2020, whereas for an insurance undertaking or a reinsurance undertaking, UCITS or its management company, an alternative investment fund, an institution for occupational retirement provision in December 2020. All non-financial counterparties are mandated to report their LEI in February 2021.
In addition, ESMA has published a set of guidelines and technical instructions on reporting under the Money Market Fund (MMF) Regulation, where it makes the use of LEI mandatory for the exchange of information with competent authorities. ESMA’s reporting instructions provide guidance on how to fill in the reporting template that managers of MMFs will have to transmit to competent authorities as of Q1 2020. ESMA mandates the use of LEI for a range of entities, including the MMF itself, the MMF manager, depository, master MMF, issuer, securitization sponsor, counterparties for derivatives, deposits and repos and other MMFs in which an MMF invests.