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FSB Suggests Reducing Cost of LEIs in Response to Review Finding LEI Coverage too Low

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The Financial Stability Board’s (FSB) latest review of the Legal Entity Identifier, a Thematic Review on Implementation of the Legal Entity Identifier (LEI),   offers an ‘I said so’ to the sceptics, but also recommendations that should benefit firms using the LEI and encourage further take-up that will drive data standards, quality and accuracy across the industry.

Noting the G20’s endorsement in 2012 to set up a Global LEI System with the objective to ‘encourage global adoption of the LEI to support authorities and market participants in identifying and managing financial risks’, the review states: “The LEI has far to go to meet the G20’s objective. Coverage is too low outside securities and derivatives markets to effectively support new industry or regulatory uses, or to reach a tipping point where voluntary take-up by market participants would suffice to propel further adoption. LEI adoption also remains uneven across jurisdictions, with coverage concentrated in Canada, the EU and the US.

“More efforts should be made both at national and international levels to promote LEI adoption and enhance the benefits to authorities and market participants from its use by addressing identified obstacles.”

The obstacles highlighted in the review include the current business model, which does not clearly align the benefits and costs of LEI use for participants, a lack of LEI coverage for Level 2 relationship data; and insufficient links with other identifiers, in particular, identifiers held in business registries.

While adoption of the LEI has not gone as well, perhaps, as initially anticipated, the FSB remains committed to broader use of the identifier globally to meet the G20’s objective. To do this, the review sets out four sets of recommendations. Essentially, these require:

  • FSB jurisdictions to encourage and promote use of the LEI
  • The FSB to explore the potential of the LEI in its work, and work with standards and industry bodies on adoption for all group entities and major counterparties of global systemically important financial institutions, as well as on the implementation of the LEI in payment messages
  • Standard-setting bodies and international organisations, such as the IMF, OECD and World Bank, to review and consider ways to embed or enhance references to the LEI in their work
  • The LEI Regulatory Oversight Committee (ROC) and Global LEI Foundation (GLEIF) to consider enhancements to the LEI business model to lower the cost and administrative burden of acquiring and maintaining an LEI, enhance the data quality process to increase the reliability of LEI data, raise awareness of the benefits of the LEI, and extend the scope and usability of Level 2 relationship data.

Commenting on the review and recommendations, Stephan Wolf, CEO of the GLEIF, says: “GLEIF welcomes the peer review of implementation of the LEI by the FSB, our founder. We fully support the recommendations set out in the report, including of course those addressed to GLEIF, to promote broader LEI adoption.”

Looking back, the review notes that LEI adoption has been most successful when the identifier has been mandated by regulators as part of an international standard-setting effort or across multiple market segments, and that widespread coverage has already been achieved in OTC derivatives and securities markets, where the LEI has come closest to meeting the G20’s objective.

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