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A-Team Analysis: IBEI Fears Grow as MiFID Approaches

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Concern among industry participants is growing about the possible operational and financial implications of the current lack of a standard International Business Entity Identifier (IBEI) for use in transaction reporting under MiFID. The issue raised its head (again) during a meeting of experts this month in London under the auspices of an ISO Working Group

With the progress of ISO Working Group 8 on IBEI apparently having stalled, industry groups such as ISITC Europe and the MiFID Joint Working Group are calling for an interim international identifier to be made available in time for use in transaction reporting when MiFID comes into force.

The IBEI issue is further muddying the already cloudy waters when it comes to the reference data requirements of MiFID transaction reporting. Industry practitioners are worried that the potential for National Numbering Associations (NNAs) to independently issue IDs using varying formats will create cross-referencing complexity. What’s more, if the IDs are not freely available, the NNAs could end up provoking a re-run of the Cusip/ISIN debacle that the industry has been grappling with for longer than we care to remember.

There are several strands to this complex issue. One is the difficulty of finding a body prepared to oversee the issuance of an IBEI while only charging enough for the function to recoup costs and make a “reasonable” profit.

Swift has undertaken to extend the BIC to investment funds (Reference Data Review, September 2006) and is currently in the process of reviewing possible partners for that activity: CounterpartyLink and Deutsche Boerse’s Avox are known to be in the frame. But, as Swift told Reference Data Review prior to its Sibos event in Sydney last year, it does not want to undertake the role of being the issuer of an ID for all entities – this would be an order-of-magnitude bigger task, for which the bank-owned co-operative does not want to have to staff up, it is understood.

Some observers, it has to be said, believe this reluctance is borne of a misinterpretation of the role of the IBEI issuer, which is not to take over the due diligence activities of individual banks, but rather to electronically issue an IBEI once the bank has carried out that process itself.

Whatever the rights and wrongs there, Swift’s unwillingness to take on the role creates a further issue, in that for an ISO standard there can be only one Registration Authority. As such, if Swift does not want to be the RA for the IBEI as a whole, then either the BIC extension cannot be considered a part of the IBEI activity or the IBEI activity has to go back to the drawing board, or both.

Another strand is the role of the Committee of European Securities Regulators (CESR), which opened a public consultation on the “Use of reference data standard codes in transaction reporting” in December and held an opening hearing on the subject in Paris on January 8. CESR has listed the standards it thinks should be used for transaction reporting between competent authorities in accordance with Article 25 of MiFID, and points out that while the standards used between CESR members do not automatically dictate the standards to be used by investment firms for reporting, there is a strong link between the two.

For the most part these seem to be uncontroversial, except that CESR specifies use of the BIC – which quite apart from the gaps in its coverage also suffers from the problem that it is not unique: there is not a one-to-one relationship between BIC and entity, and this was one of the reasons behind the drive to create IBEI in the first place. The CESR consultation period closed on January 15 and a spokesperson for CESR says the responses will be available on its website shortly, with CESR’s decision to be announced within a month from now.

This at least will please the ISITC Europes and MiFID Joint Working Groups of this world, who were concerned anyway that without detailed specification of standards for transaction reporting in relatively short order, individual firms’ preparations for MiFID were under threat of serious derailment. Another worry is the differing implementation of transaction reporting standards in different markets.

There are some who say the lack of an ISO-standard IBEI is a non-issue: there are plenty of codes out there (Avox is issuing its Avids, Telekurs its IBEIs for Switzerland and Lichenstein, and many of the major data vendors are weighing in already with their “own” IBEIs). We should let commercial realities win the day. Banks do a lot of mapping already, and they can do some more. Indeed, the addition of yet another ID might do more harm than good if it creates the requirement for yet another mapping exercise.
But there are two major problems with this. First, the vision of IBEI was that there should not be an issuing agency per market, but rather one for all markets. Second, perhaps more seriously, is that there is a world of difference between a commercial entity that is prepared to issue an ID for nothing and make money on ancillary services, and one that sees ID issuance itself as an opportunity to make a pot of cash.

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