The Financial Stability Board (FSB) has veered away from existing plans for the infrastructure that will support legal entity identifiers (LEIs), proposing a federated model for the distribution and registration of LEI numbers rather than a single and central global registration authority.
This could be a significant blow to Swift, which was selected last year by the International Organisation for Standardisation (ISO) as part of the ISO 17442 standard to be the global registration authority for the LEI, but it is fighting back and clinging to its partnership with US repository DTCC as a means of playing in the LEI game.
After calling for input from all interested parties on April 16, the FSB’s LEI expert and industry working groups submitted their recommendations on the LEI infrastructure to the FSB on April 30, stating that a single organisation delivering LEIs as a global solution was not the right approach and that a federated approach would be more appropriate.
On this basis, the FSB has asked the ISO to remove governance of a registration authority from the 17442 standard and states that it will define the governance model potentially including national or regional registration organisations linked in a federated model. This could give national agencies, perhaps exchanges or data vendors, the role of giving out, registering and storing LEIs, potentially excluding Swift from the management of LEIs.
Chris Pickles, head of industry initiatives, global banking and financial markets at BT, and an advocate of the federated model, explains: “A number of people in the market have said that a single LEI registration service would be wrong from a monopoly and IT point of view. The key to a successful LEI structure is a federated approach. Many countries’ governments already issue legal identities. For example, in the UK Companies House has issued identifiers to 2.7 million companies.
“When the standard format of the LEI is finalised it could be used for such identification. Any country could issue LEIs so long as the LEI has a standard format and there is a common approach. We don’t need one organisation to do this for the whole world and there are clearly political as well as financial risk issues behind the introduction of the LEI – would Russia want a US organisation to be the only issuer of LEIs to its financial organisations?”
While the proposal of numerous LEI registration authorities suggests a diminished role for Swift, if not its elimination from the LEI infrastructure altogether, Swift doesn’t see things this way, claiming that its partnership with US data repository DTCC means it remains a candidate for the registration authority role.
Paul Janssens, LEI programme director at Swift, says: “The decision to remove from the ISO standard the governance of the registration authority is not against Swift. Under the ISO model Swift would have been the global registration authority, but there is still a role we can play. Swift’s value is as a global community, so we could be one of the players in a central utility. Our joint proposal with DTCC doesn’t change.”
Janssens suggests that within a utility there would still be the need to assign LEI numbers and that this is what it has worked on with and tested with DTCC. He continues to argue in favour of a global repository and registry, proposing that only a central function could sustain accurate data and that multiple LEI issuers could cause duplication.
Swift’s initial stance of near certainty in gaining a leading role in the LEI could also be its downfall, but it must await its fate as the schedule that will deliver the LEI rolls out.
Despite the FSB’s change in tack, the initial introduction of LEIs and the infrastructure that will support them is still expected to go ahead in the US in July under the regulation of the CFTC. Following the FSB’s indication of a federated model at the end of April, it will hold a further plenary on May 28 before the CFTC announces which organisation will be the initial LEI issuer and which the initial repository on May 29. This decision will be put before the G-20 summit on 19 June for ratification ahead of CFTC regulation on LEIs coming into play for OTC derivatives and interest and credit rate swaps on July 16.
If a federated approach to registration makes the final cut, it could well be that DTCC – without any help from Swift – acts as both LEI issuer and repository in the US, an interim model that is likely to be the basis of a global build out of the LEI infrastructure.
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