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LSE Details Go-Live of Pre-LEI as Regulatory Oversight Committee Reviews Global LEI System

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The London Stock Exchange (LSE) is planning to go live with the issue of pre-legal entity identifiers (pre-LEIs) called Interim Entity Identifiers (IEIs) on July 31, following its confirmation June 6 as a pre-Local Operating Unit (pre-LOU) under the sponsorship of the UK Financial Conduct Authority.

The exchange detailed its plans this week during a webinar presented by the Global Financial Markets Association. The webinar also reviewed progress of the gobal LEI system under the auspices of the Regulatory Oversight Committee (ROC) and the status of the two pre-LOUs already issuing pre-LEIs: DTCC/Swift, which issues CFTC Interim Compliant Identifiers (CICIs), and WM Datenservice, which issues German/General Entity Identifiers (GEIs).

The LSE has integrated pre-LEI CICI and GEI data into its system to offer a consolidated pre-LEI search function through the system’s user interface. The development begs the question of whether LOUs will be able to sustain consolidated databases as the LEI system grows or whether the critical, but not yet established, Central Operating Unit (COU) of the global LEI system will set up and manage a consolidated LEI database on behalf of all LOUs.

The LSE system includes dynamic filtering and search functionality across all data fields, and has been validated to prevent submission of duplicate entity entries. The system manages consolidated and IEI data files in flat file format and includes a My IEI Data view, status reports on IEIs, annual certification reminders and the possibility for automated portability, although how portability of pre-LEIs and LEIs will work has yet to be agreed by the ROC.

Ongoing work at the LSE includes finalising internal validation procedures for different entity types and entities from different jurisdictions, considering the impact of corporate actions on pre-LEIs and publishing user guides. The exchange says IEI allocation requests are being received on a daily basis and that it is showing live demonstrations of the test environment to user communities ahead of planned go-live at the end of July.

The LSE, like other pre-LOUs, is waiting for further information on how it can be endorsed and recognised by the ROC as part of the global LEI system, as well as for details of framework operating issues such as file formats and content, and pre-LEI portability. Like its peers, it also continues to participate in LEI working groups and industry forums, in particular the Committee for Evaluation and Standards’ (CES) pre-LOU group on standardisation that was set up early this summer to develop consistency among pre-LOUs.

Updating the status of the CICI utility, DTCC notes that since its go-live almost a year ago in August 2012, over 85,000 entities have been assigned CICIs. It receives about 250 submissions for CICIs every day and has entities registered in 148 countries. Not surprisingly, it says a very high percentage of swap contracts in the CFTC’s swap data repository include CICIs. Like the LSE, the utility has introduced a consolidated file of pre-LEI records and is supporting de-duplication efforts across pre-LOUs.

The next release of the CICI utility will introduce fields for additional ISO attributes including the address of an entity’s headquarters, its business registry name and number, and the date and reason for its expiration. These fields will act as placeholders until implementation recommendations are finalised by the ISO working group within the overall system development. Updated vocabulary will also appear in the next release.

WM Datenservice, the second utility to issue pre-LEIs after DTCC/Swift, went live with GEIs in April. It has received about 2,700 applications and has issued towards 1,800 GEIs. New submissions are growing and are currently around 80 a day, with the company receiving entity registration requests mainly within Germany, but also from other European countries.

The company is planning to introduce a consolidated data file of pre-LEIs within the next week. It will follow the ISO 17442 record standards as a minimum for the exchange of files among LOUs and ultimately with the COU. Noting that European Market Infrastructure Regulation (EMIR), with a reporting deadline of January 1, will be the biggest driver of the LEI in Europe, WM Datenservice answered an audience question on where an entity should be registered for the purposes of EMIR, saying that once the ROC has agreed the mutual recognition of LOUs it will be possible to uses pre-LEIs and later LEIs from any jurisdiction in local regulation.

On a wider scale, webinar participants Martin Reed, chief counsel for the US Office of Financial Research and chair of the ROC, and Francis Gross, head of the external statistics division at the European Central Bank and vice chair of the CES, provided an update on the global system.

Reed says the ROC has been functioning fully since his appointment as chair in January 2013. The next piece of the global jigsaw, the global LEI Foundation that will underpin the COU, is organising statutes agreed by the ROC. These should be finalised soon ahead of the selection of a board for the foundation that is likely to be complete later this year. With pre-LEIs already in circulation, Reed emphasises the need for the interim LEI system that will be used until the foundation has finished its work and the COU is in place.

Once the COU is operational, it is expected to govern pre-LOUs and LOUs by contract or franchise. To date, nine pre-LOU prefixes have been assigned and pre-LOUs must follow six principles set out by the Financial Stability Board, the forerunner of the ROC. Pre-LOUs must also be endorsed and pre-LEIs must be globally accepted for regulatory reporting by the ROC. Details of the endorsement process were due from the ROC before the end of June, but the deadline was missed because the large size of the committee – the global LEI system is all about consensus – slowed down finalisation of the documents. On this point, Reed declines to state another date to publish the process, but says this will happen in ‘near time’.

One issue around pre-LEIs that was not raised during the webinar, but could cause concern, is pre-LEIs issued by the CICI utility before 30 November 2012. These codes were issued in line with the ISO 17442 standard, but do not necessarily follow the FSB’s decision to include a four-digit prefix in the code to recognise the pre-LOU that issued them. While the FSB previously suggested these codes, of which there are about 20,000, would transition into the LEI system, their lack of conformance may lead the ROC, it is feared by some in the marketplace, to decide they will not be grandfathered and will no longer be considered as valid pre-LEIs.

Concluding the ROC update, Gross said: “This is a complex undertaking, both conceptually and technically. The pre-LEI is providing a good learning platform. Regulatory reporting was key from the start, but compulsion to use the LEI will not come from the ROC or COU, it will come from legislation. We hope, in future, that the LEI will provide a governance model for entities and even instruments.”

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