The Legal Entity Identifier (LEI) crossed the 2 million mark of identifiers issued, experienced organic growth of 15% despite no major regulatory implementations, and held a steady 65% renewal rate through 2021. Moving into 2022, projects set up by the Global LEI Foundation (GLEIF) to expand LEI issuance are expected to take off, and the US, for so long the elephant in the room, shows signs of reconsidering use of the identifier.
To review the progress of the LEI in 2021, catch up on plans for 2022, and consider industry initiatives that could foster further growth of the identifier, Data Management Insight talked exclusively to Stephan Wolf, CEO of the GLEIF.
New initiatives
Starting with new initiatives, Wolf noted a renewed interest among US regulators, particularly in money markets and investment areas, in the LEI. Perhaps more materially, the US Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) have set up a tech sprint organised by FDIC’s FDITECH arm and seeking to answer the question “What is a scalable, cost-efficient, risk-based solution to measure the effectiveness of digital identity proofing to ensure that individuals who remotely (i.e., not in person) present themselves for financial activities are who they claim to be?”
Registration for the tech sprint starts at the end of January 2022 and runs to the end of February 2022, when FDIC and FinCEN plan to review registration applications and invite a select number of individuals to participate in the tech sprint, which will be followed by a demonstration day in March. While the government agencies acknowledge that there is unlikely to be a one-size-fits-all answer to the question, it is likely that the LEI will be a contender.
In Europe, Wolf reported interest in a legal LEI framework that could require countries to give all entities an LEI. A scheme along these lines has been presented by the European Systematic Risk Board (ESRB) to the European Commission. The next move will be a response from the Commission. Wolf says that while people are talking about a legal framework, it could take anything from three to seven years to begin to make it happen, if it happens at all.
Reviewing 2021 and forecasting 2022
Sharing LEI highlights through 2021, Wolf noted growth in the number of validation agents getting LEIs for their clients and rising interest in the verifiable LEI (vLEI). Regulators were more engaged with the LEI System, he said, and the identifier was made mandatory for payment processes by the Bank of England and Reserve Bank of India.
With no major regulations mandating use of the LEI in 2021, Wolf said digital transformation was driving rising numbers of the identifiers in Europe, a trend that may also be seen in the US.
The role of the validation agent, essentially a bank within the Global LEI System that can obtain an LEI for clients free of charge as they are onboarded or during a client refresh, has been taken up by seven global systemically important banks (G-SIBs). Wolf expects this number to rise through 2022 and 2023 towards 25 as regional and mid-size banks see the benefits of becoming validation agents.
The vLEI, which was introduced in December 2020 and is a secure digital attestation of a conventional LEI, also gained interest in 2021. Wolf explained: “The purpose of the vLEI is to make the LEI relevant to digital transactions. It is like a small container for an LEI that can be used as a digital signature and encrypted with the keyholder being the LEI owner.”The GLEIF has completed sandbox development of open source software for the vLEI and is testing the software in pilot projects across a range of sectors – it is also welcoming additional organisations that would like to join the projects, so do get in touch if you are interested.
While the GLEIF has signed off its own reports digitally for the past couple of years, it acknowledges that many reports require multiple signatures. On this basis, it is working on a solution that builds on the vLEI and is expected to be completed sometime this summer.
Concluding with a snapshot of the LEI’s progress past and future, Wolf said: “2021 has been a fantastic year, 2022 will be good with organic growth of the LEI at 10 to 15%, and 2023 will yield the results of our validation agent and eVLEI programmes.”
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