Early indications from this week’s Financial Stability Board (FSB) meeting of the Legal Entity Identifier Private Sector Preparatory Group (LEI PSPG) suggest great progress has been made since PSPG working groups were set up in July to consider the governance, operations and data issues of an LEI system. But concern remains around a lack of decisions and a transparent decision-making process that will finalise exactly what the LEI solution will look like and which service providers will be involved in its delivery.
According to members of the PSPG, the two-day meeting in Basel was unprecedented in bringing together the global financial industry in one place at one time, perhaps an acknowledgement of the criticality of an LEI scheme. So, too, was the volume and quality of work produced by the working groups on a pro bono basis. This was described by one PSPG member as enough to “blow away the strategy teams of many large commercial organisations”.
The first day of the meeting, which was also attended by regulators from the FSB’s LEI Implementation Group, hosted multiple service providers from around the world presenting proposals on how they could implement all or part of an LEI solution. Despite the FSB’s decision in May 2012 to take a federated approach to building LEI infrastructure and the endorsement of its recommendations by the Los Cabos G20 summit in June, the initial concept of a centralised system is still not extinct, giving rise to questions on how and by whom final decisions on a solution will be made.
As one member of the PSPG put it: “different people still have their own interpretation of what an LEI solution is.” This includes how far a truly federated solution might be adopted.
The likely outcome is a solution where a federated LEI system remains the goal, but a start will be made using one solution while individual countries decide if and how they will use LEIs.
Clearly, the DTCC has a head start here having built and introduced the Commodity Futures Trading Commission’s (CFTC) CFTC Interim Compliant Identifier – or Cici – portal in August 2012, but other bidders at the meeting also said they could put in place an LEI solution and start immediately.
If the final form of the system remains undecided, the mood of the meeting, which on the second day included panel sessions by each of the working groups, was animated with participants agreeing the need for speed and committing to continue work to make sure the core structure to administer a global LEI system is in place by the FSB’s deadline of the end of March 2013. By this time, it is expected that the Regulatory Oversight Committee (ROC) will be in place as well as the core of the Central Operation Unit (COU). The creation of Local Operating Units (LOUs) could follow swiftly after.
Again, actual decisions on how the LEI solution will move forward to meet the 2013 target remained elusive. One member of the meeting suggested that, based on previous scenarios, the regulators of the Implementation Group may make decisions on governance, LEI code structure and overall alignment of the ROC, COU and LOUs, and then put proposals out for a comment period before final decisions on all issues are made before the end of the year.
Another noted that volunteer members of the PSPG made it “very clear to regulators throughout the two days that what they now need is decisions by the Implementation Group of regulators as a result of the work that has been presented”. Bearing this in mind, the Implementation Group is preparing its recommendations for the next meeting of the ministers of finance of G20 countries that will be held in Mexico City in early November.
This meeting is expected to ratify the recommendations, allowing groundwork for the ROC and COU to start before the end of the year and roll on into next year. Until then, however, the mystery of which organisations will be involved in operating the LEI system and its distinct details lingers on.