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Panel Agrees LEI Standards and Infrastructure are Likely to Face Some Delays, CFTC Deadline is First Milestone

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A lot of progress may have been achieved this year with regards to moving towards a new legal entity identification (LEI) standard, including getting the G20 to pay attention to the work that has happened thus far (see more on which here), but once the initiative reaches the implementation stage there are likely to be some delays, agreed a panel at this month’s FIMA conference in London. Elaborating on the challenges ahead, panellists including the European Central Bank’s (ECB) head of external statistics Francis Gross and Swift’s LEI implementation lead Sven Bossu, indicated that the intention is to have the new ISO standard published by January and a number of “lengthy discussions” have already taken place with regards to the issuance process and governance.

Bossu explained that the potential utility providers, Swift and its proposed facilities manager the Depository Trust & Clearing Corporation (DTCC), are planning to look at the scope of the Commodity Futures Trading Commission’s (CFTC) requirements at the start of next year. The intention is to build the LEI database up by starting with the swaps market and tying the initiative to these concrete regulatory proposals at the outset. LEIs will therefore be established for entities involved in these markets and then the plan is to extend this to other markets in a phased manner.

However, Gross, who has long been a champion of the utility approach to reference data, noted that the key challenge will be to “agree to skin the governance cat in the same way,” ergo to be able to agree the appropriate governance structure for the utility and to clearly label what those involved can and can’t do on a competitive level. In the interim, he noted there is likely to be “makeshift governance” in place to be able to tackle the CFTC’s requirements and ensure there is a platform to build upon. “Overall, the governance nut will be hard to crack,” he added.

Fred Cohen, group vice president of Capital Markets and Investment Banking at vendor iGate Patni, suggested that there are four key components to the implementation of a utility. “The four key components of implementation are: the ability to store the data; the provisions for firms to be able to provide that data to the utility, including relevant technology changes; regulatory use of that data; and vendors’ ability to be able to support the standard,” he elaborated. “It will therefore be quite a challenge to be able to coordinate all four of those tasks.”

Cohen stated (and other panellists agreed) that this would likely mean delays further down the road. “The deadline will be set for compliance, firms will struggle and delay the deadlines, then progress will happen,” he contended.

Julia Sutton, director and head of customer data at Deutsche Bank (a role she has just recently moved to from RBC), cautioned that a slow and steady approach to implementation is probably wise, with the identifiers established before hierarchical information is tackled: “We need to be able to walk before we can run.”

Another challenge will be the requirement to deal with the different data confidentiality requirements across regulatory jurisdictions, said Gross. However, he pointed to the support of bodies such as the Financial Stability Board (FSB) as a starting point for these negotiations.

Gross concluded that the initiative is currently at its “most dangerous moment” with regards to moving into the broader spectrum of regulatory intent and that communication will be key to its success. “The industry needs to take the lead in designing the utility and there needs to be smart cooperative regulation to support it,” he said.

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