The Financial Stability Board (FSB) has outlined details of the global legal entity identifier (LEI) system that it will propose at the forthcoming G20 meeting on June 18-19 in Los Cabos, Mexico. The system would involve the creation of “a ‘logically’ centralised database of identifiers and corresponding reference data” that would appear seamless to users but would draw upon data physically stored on different systems across the globe and united by a central technology platform.
This federated approach to the LEI, would support national or regional registration authorities linked in a federated model, and could give national agencies, perhaps exchanges or data vendors, the role of allocating, registering and storing LEIs.
Pending approval, the FSB plans to establish an LEI Implementation Group “to develop a central platform to facilitate the integration of local identification schemes into [the] logically centralised database of unique LEIs.” As reported, the recommended implementation plan targets launch of the global LEI system on a self-standing basis by March 2013 (see here).
The FSB proposals would create a framework for the initial LEI reference data (including the name, address, and basic ownership information) and code that are “fully in line with the recently published standard for the LEI developed as an industry consensus solution by the International Organisation for Standardisation: ISO 17442,” according to the FSB.
The FSB is emphasising the need for the LEI system to be based on a self-sustaining funding model. “The model must ensure that the system is based on non-profit cost recovery and that there are no monopoly rents accruing to service providers,” it says. It envisages two components for steady-state funding: 1) a local discretionary charge and 2) a common fee for support of central functions. FSB says: “The cost of obtaining an LEI should be modest and not a barrier to acquisition. Access to the LEI and associated reference data will be free and open to all users, and there should be no ‘bundling’ of other services alongside the LEI by providers which forces users to pay directly or indirectly for the LEI.”
The FSB is recommending a three-tier structure for managing the global LEI system, comprising a Regulatory Oversight Committee (ROC), Central Operating Unit (COU), and Local Operating Units (LOUs).
At the top rung of this triumvirate, the ROC would have ultimate responsibility for the governance of the global LEI system in the public interest. It would comprise what the FSB terms the “authorities [that] support the core principles and purposes of the system”, including international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The FSB describes the COU as “the pivotal operational arm of the global LEI system”. The COU will have responsibility for ensuring the application of uniform global operational standards and protocols that deliver: global uniqueness of the LEI; seamless, open access to the global LEI and to high quality reference data for users (with the depth of access controlled by appropriate access rights). The COU would also be responsible for the protocols and methods for how local systems can connect to the COU.
Under the FSB proposals, the COU would be a legal entity in the form of a not-for-profit foundation that would draw upon industry expertise to develop the most technologically, financially and legally sound methods to implement the global LEI system in line with the standards and framework defined by the ROC. The COU’s board of directors – composed of industry representatives and independent participants – would provide recommendations on whether to outsource or develop in-house any particular function or operation of the global LEI system.
The LOUs would be responsible for local implementation of the global system. LOUs would offer local registration, validation, and maintenance of reference data, and protection of information that must be stored locally. They would also facilitate the use of local languages and organisation types. LOUs could build on local business registry or numbering services to maximise the utilisation of local infrastructure.
With G20 approval under its belt and the various operational entities in place, the FSB proposes the creation of an LEI Implementation Group. The group would be mandated to undertake the necessary preparatory work with a wide range of private industry representatives to develop a central platform to facilitate the integration of local identification schemes into a logically centralised database of unique LEIs. The FSB plan to issue an open invitation and solicitation of interest in joining the global industry LEI foundation consultative group once approved by G20.
The FSB’s recommendations are published in a report, ‘A Global Legal Entity Identifier for Financial Markets: FSB Report to the G20’, being made public today. The report provides detailed information on the FSB’s recommendations for the development and implementation of a global LEI system, a proposed governance framework aimed at protecting the public interest, and an implementation plan that hopes to coordinate the activities of the global regulatory community with the private sector.
The report sets out 35 recommendations for the development and implementation of the global LEI system. These recommendations are guided by a set of ‘High Level Principles’, which outline the objectives that a global LEI system should meet.
Once the proposed 20-character identifier is in place, along with basic reference data for each entity, the LEI can start to be used by regulators and other industry practitioners in their risk management activities.