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Euroclear’s Kuhnel on ANNA’s Potential as a Registration Authority, What to Expect this Year on Legal Entity IDs

As elaborated upon by WMDatenservice’s Markus Heer earlier this year, the Association of National Numbering Agencies (ANNA) is pitching itself as a suitable registration authority for the new legal entity identification (LEI) standard underlying the US Office of Financial Research (OFR). Dan Kuhnel, chairman of ANNA and director for primary markets and international fixed income securities at Euroclear Bank, who has just been relocated to the firm’s Hong Kong branch, explains to Reference Data Review what the industry can expect from the industry group over the coming months.

Much like Swift, ANNA has been particularly active over the last few months about promoting its potential as a neutral and industry led registration authority. Here, Kuhnel elaborates on recent progress, 2011 goals and how ANNA’s proposed federated approach could work in practice.

Could you update our readers on how much progress has been made with regards to developing the required ISO standard for legal entity identification, as requested by the US OFR?

A study group was formed under the ISO TC68 umbrella. This study group looked at the various ISO options available and decided that a separate new LEI standard was the best way to proceed. The study group then created a new work item proposal to seek endorsement from the ISO voting member countries. This was completed and approved. Work on creating the draft international standard can begin upon appointment of the registration authority.

In parallel with the aforementioned, the two entities (ANNA and Swift) that are seeking consideration to be appointed as the registration authority for the LEI standard have prepared separate responses to a set of specific questions formulated. (At the time of writing this, the ISO voting member countries are in consideration of the two proposals and voting will be concluded at the end of April.)

Given that it is only a draft standard at the moment, is there a danger that the US will go down a different route than ISO? What would be the impact of this?

As the readers will be aware, there have been a number of submissions to the OFR consultation paper – providing a number of options for consideration. There is always a chance that a non-ISO solution is chosen, but we feel that an ISO solution is the best options for all parties involved.

The ISO process for developing standards has a reputation for being quite slow (given that drafts and revisions can take a long time to get through), how has the process been expedited?

The TC68 study group was consciously aware of the timeline that the OFR has in mind. Thus it was possible to fast track the development of the LEI standard to have a solution within a reasonable timeline.

When can we, realistically, expect the standard to be finalised?

The timeline the ISO TC68 study group is envisioning working to is outlined below:

  • begin balloting on LEI committee draft: end of March 2011;
  • conclusion of balloting on LEI committee draft: end of June 2011;
  • preparation of draft international standard: end of July 2011;
  • date to begin balloting on the draft international standard: end of July 2011;
  • date by which balloting of draft international standard would be complete: end of Jan 2012;
  • approximate date of publishing standard by ISO: end of March 2012; and
  • if unanimous approval of draft international standard were not received, timeline for publication would shift to end of July 2012.

In terms of deadlines, the OFR has set July as the deadline for deciding on an LEI, will this likely be pushed back?

ANNA believes it is still feasible for a decision on the LEI to be concluded by July 2011, assuming market consensus can be reached on all associated aspects.

ANNA is pitching itself as a suitable registration authority for the new standard, what makes you different from other contenders such as Swift?

ANNA is a non-commercial, membership governed organisation that has the proven infrastructure composition to meet the requirements of assuming the role of the registration authority for the LEI.

ANNA has been acting as the responsible registration authority for the ISIN standard since the inception of security identification numbering, which thus led to the creation of an ISIN standard. The ISIN being endorsed as an ISO standard actually occurred after the formation of ANNA – which was formed to oversee and coordinate the assignment and dissemination process of security identifiers amongst the original founding 22 members. Today, our coverage is in excess of 200 countries.

Subsequently, ANNA was appointed as the registration authority for the ISO 10962 standard (the six character Classification of Financial Instrument, or CFI, standard) for the classification of financial instruments. This was effective from the mid-1990s.

Due to the scope of geographical coverage and membership composition that ANNA currently has and which continues to expand year on year, the National Numbering Agencies (NNAs) are viewed as the centre of excellence for security numbering in their responsible countries/jurisdictions. It is our view that the NNAs are best placed to assign LEIs for organisations within their area of responsibility and are also best placed to ensure that only valid, eligible entities receive an LEI. This is because the NNAs are “on the ground” with the legal entities that they would assign numbers to. It can be expected, that many of them are already known to the NNA, as these entities are already acting in the capacity as issuers or guarantors.

How would such a federated approach work in practice?

Many LEIs are already known to the NNAs as they are already acting as issuers and guarantors. WMDatenservice for instance, who is the responsible NNA for Germany, is already assigning a code for issuers following the basic principles of the previously drafted International Business Entity Identifier (IBEI) standard. Most NNAs will have an issuer identification already for entities requiring an ISIN. For the remaining companies, local numbering systems, for example the tax number, can be re-used.

Companies in need of an LEI (because they have to comply with local/international legislation which requires them to state an LEI) can request such a code from the responsible NNA. If they accompany the request with the required documents, it should be feasible for most NNAs to respond to such a request within 24 hours or even faster.

For NNAs who are not able to fast track implementation of the LEI, ANNA has established the substitute Numbering Agency role where NNAs with well developed technical and operational capabilities in the data vendor space (like SIX Telekurs, Standard & Poor’s, WMDatenservice and others) act on behalf of and in cooperation with those NNAs until they have developed the capabilities on their own. This same principle can be applied in the start phase of LEI implementation. Many of the aforementioned NNAs have already agreed to take on the LEI assignment responsibility.

It is envisioned that the Numbering Agencies will assign and maintain the LEIs for which they have been given responsibility, in the same manner as is currently done for ISINs and CFIs.

In today’s scenario, the NNAs are initially contacted by either the issuer, their appointed legal counsel, the appointed issuing and paying agent, the investment bank underwriting the transaction or a third party client with an interest in the security – to advise of the existence of a new security and seek the assignment of an ISIN and CFI code for that instrument.

Throughout the lifecycle of a security, the responsible NNA maintains responsibility for associated data linked to the security through its lifecycle. ANNA has created specific rules and guidelines for the NNAs to follow in cases of mergers, acquisitions or corporate actions. ANNA envisions similar types of guidelines and rules will be required for LEI assignment. This can be achieved through the creation of an initial task force (created from the ANNA membership with the involvement of relevant external parties), which is then reviewed and maintained through an established working group.

It is therefore ANNA’s view that the LEI assignment and maintenance process will follow the same logic as has been applied for ISIN and CFI maintenance. Entities would approach the responsible NNA for assignment of a new LEI for an entity domiciled in that jurisdiction.

In respect of amendments and deletions, this would again follow applied principles in existence today with respect to ISINs and CFIs. The responsible NNA has a number of sources to rely on to ensure changes are captured – either from internal sources, clients or external parties approaching the NNA to advise them of a change or requirement to delete. ANNA plans to leverage existing practices applied to assignment and maintenance of ISINs and CFIs today and adapt them to the specificities of LEI assignment.

Given that ANNA is facilitated and supported by the underlying data vendors servicing the ANNA Service Bureau, is there not a potential conflict of interest there?

ANNA does not believe there are any issues of concern with conflicts of interest. The operators of the ANNA Service Bureau are also ANNA members (NNAs) and are thus fully committed to working with ANNA in the best interests of the financial markets we serve.

After years of relative inaction on the subject, it seems that the industry has finally got the impetus to tackle this area – would this have ever happened with out regulatory compulsion?

At the level of ISO, the need for a unique entity identifier has been identified for some years now and within ISO there has been a considerable amount of effort to develop a standard to address this requirement. I cite two work streams: one that developed the concept of an IBEI and a second that developed the concept of an Issuer and Guarantor Identifier (IGI).

What progress can we expect to see made before the end of this year?

Referencing the previously noted timeline – by the end of this year, we envision the completion of the committee draft and the preparation of the draft international standard, which would then be circulated to the ISO voting member countries for consideration. By the end of this year, the voting process of the draft international standard would be almost complete.

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