The development of Swift’s Bank Identifier Code (BIC) as a legal entity identifier has proved a controversial topic over the last year or so and a number of industry participants are concerned that it is not fit for purpose. Paul Bodart, executive vice president and head of EMEA global operations at BNY Mellon Asset Servicing, for one, reckons that the industry may be expecting too much of the identifier and that the BIC should not be tied down to a strict hierarchical structure for parent and subsidiaries, but should instead sit freely as a means of identifying an individual entity.
The development of the BIC as a legal entity identifier is a key strategic aim for Swift over the next five years, according to Arun Aggarwal, Swift’s managing director for the UK, Ireland and the Nordics, but the work has a long way to go before the BIC is ready to be used in such a manner. Bodart explains: “The way that the BIC is constructed at the moment is limited as it employs an internal structure that is difficult to maintain over time due to M&A activity that impacts financial institutions.”
There is some degree of debate at the moment about how the BIC should be developed to act as a more general entity identifier for the market, rather than its current function as a bank identifier within the frame of the messages carried across the Swift network. Some are keen for the code to be adapted to be able to capture the detailed relationship between an entity and all its related entities, thus a subsidiary could be rolled up to its parent via the BIC’s data.
Bodart, however, reckons the industry needs an entity identifier that can sit freely from a restrictive structure and does not have to be changed every time a merger or acquisition or corporate activity takes place. “The dream of a BIC code that can show an entity’s detailed organisational structure will never be realised due to the pace of change in the market. Reliable codes that allow for the identification of an entity in order for business to be conducted in an efficient manner are needed. As long as the codes are transparent and the relevant fields are filled in correctly then it should function in the way required by the market,” he contends.
He believes that this could circumvent the problem of having to alter or discard BICs when a merger or acquisition takes place, which he feels would be a costly option. The way the code is currently formatted, this action would be required in order to be able to track this information in the way the industry seemingly wants it to function. It would be a far from simple exercise for these codes to be altered to reflect a change of ownership every time M&A activity occurs; firms would essentially need to globally replace each instance of the BIC across their organisation.
Bodart therefore reckons that asking the BIC to be the means of tracking systemic risk in the market may be one step too far, and he may well be right. However, he does feel it could serve a function in the entity identification challenge, just a limited one. He is also happy for Swift to continue to serve the community in this manner: “Swift already provides a repository of BIC data and I have not seen an argument why it should not continue to do so.”
This is certainly a different tack from the regulatory community, which is seemingly keen for the BIC to be developed into the be all and end all for counterparty risk tracking across the industry. It will be interesting to see which route Swift chooses over the next five years.
For now, Bodart feels there are more pressing concerns in the reference data space. Much like the rest of the industry, he is eagerly awaiting the final judgement of the European Commission on its investigation into Cusip Global Services’ (CGS) pricing of US ISINs, which began back in 12 January last year.
“The investigation into CGS’ charging practices for the creation of codes in the US market is indicative that such a utility should be run not for profit,” says Bodart. “Firms should not have to pay more than basic maintenance costs for the creation of securities and client codes.”
Bodart is therefore a supporter of regulators stepping into the fray to end the pricing practices of data giants such as Bloomberg and Thomson Reuters around embedded instrument and entity identifiers.