The bid by standards body GS1 to become the issuer of the new legal entity and instrument identification codes that are to be introduced as part of the developments around the US Office of Financial Research (OFR) may be only one of a number of options on the table, but key proponent and president of strategic advisory firm Financial InterGroup Allan Grody reckons its chances are high due to its sole focus on the standards issuance and administration process. He contends that every other bidder in the race could be distracted by commercial interests and thus put their business interests ahead of the standards development function – a position that many will, no doubt, find contentious.
“The US government needs to consider that every other bidder to act as the issuer for these new standards has commercial and business interests outside of their role as a standards issuing body, be they data vendors, exchanges or central securities depositories (CSDs),” argues Grody. “The government will therefore be granting such a firm a monopoly and this is potentially dangerous if commercial interests take precedence.”
Instead, Grody is convinced that GS1 is the answer and his firm Financial InterGroup teamed up with GS1 last year to begin to promote the idea of the standards body responsible for UPC barcodes using the GS1 System identification numbering standards to tag financial products and business entities. “GS1 has no other business interest than standards administration, whereas the other contenders are likely to keep the standards captive to their business models,” he continues.
He also points to the use of the GS1 numbering standards in 25 other industry sectors as proof that the system is successful and could be potentially applied to the financial services sector within a period of six months (as noted within GS1’s feedback to the OFR). This expedited time to market with a solution for the government is one of Grody and GS1’s key selling points for the system, as well as the potential to achieve lower capital costs and processing efficiencies in the back and middle office. Grody contends that, much like XBRL, these standards could be used to tag prospectuses at the start of the financial transaction lifecycle thus putting issuers and corporates in charge of their own registration. He reckons that this could allow users to uniquely identify their products, documents and other assets; capture identification numbers; and share related information with their trading partners or counterparties.
He notes that it is very early days for the regulatory community in tackling the systemic risk monitoring challenge and very little has been defined thus far. “If one financial institution is unable to achieve an enterprise-wide view of risk, than how can one be achieved across the industry as a whole? A basic identification system such as GS1 is one step towards achieving this visibility,” he says.
However, the biggest challenge for GS1 will be in convincing the financial services community that such an idea is feasible. On this note, Grody says: “Up until now the financial services community has been very insular and has not looked to other industries for best practices. The retail and manufacturing industries have been tracking supply chain data for years but no one has previously thought to apply this logic to the financial services markets.”
Grody reckons GS1’s track record in other industries will prove its capabilities to the market and the fact that it deals with a third of its traffic electronically demonstrates its ability to deal with products that are non-physical in nature. All of this is contained within the pages of its rather lengthy response to the OFR (the longest response by far, in fact).
He has spent the first couple of months of this year championing the cause of GS1 with industry participants and the other bidders in the OFR race. Moreover. Grody believes that the industry stands a better chance of successfully tackling the standards challenge if it works together on the issue, rather than in competition. “It is strange that after 50 years of working in silos, the industry still seems intent on tackling these issues in the same siloed manner,” he says. “It will be very hard for the regulator to pick between all of these different options if action towards reaching a consensus is not taken.”
Grody and GS1’s task is therefore to convince others including Swift and ISO to drop their OFR bids and instead opt for GS1 as the solution. Obviously this means it is going to be a tough few months for the standards body, but Grody indicates he is happy for industry participants to challenge the proposals. “We want feedback on our proposals and for people to read through our OFR response, even if it is long,” he says.