Regulation, an entity-centric view of clients, and the Legal Entity Identifier (LEI) are driving entity data management across capital markets, but the picture is not complete with market practitioners noting that the LEI needs hierarchy data to make it truly useful and a solution to the problem of monitoring systemic risk, for which it was initially designed.
The issues of entity data management and the LEI were discussed recently during a lively session at A-Team Group’s New York Data Management SummitA-Team Group’s New York Data Management SummitA-Team Group’s New York Data Management Summit. Andrew Delaney, chief content officer at A-Team Group, moderated the session and was joined by Stephen Engdahl, senior vice president of product strategy at Golden Source; Ari Marcus, director of the Information Services Group at Citi; Scott Preiss, vice president and chief operating officer at Cusip Global Services; Olivier Schlatter, managing director of AIM North America; and John Yelle, vice president of data services at DTCC.
Opening with a look at why entity data management has become important, Preiss said: “It is not just Dodd-Frank and EMIR that are driving an entity-centric view of customers, but regulations in general, including those emerging in Canada and Asia Pacific. The LEI is the right standard at the right time and Dodd-Frank and EMIR are leading the charge.” Engdahl agreed that the LEI is being driven by its inclusion in regulatory trade reporting, and added: “It is also a means for firms to better manage risk within their own organisations.”
Considering progress in entity data management and adoption of the LEI, Marcus described Citi’s work, saying: “The biggest stride is developing one entity master, which we have done at Citi. We then take LEIs into the entity master and associate them with our records. Every time we see an entity, we try to add an LEI. By centralising entity data and adding over 175 attributes to standard client records we can satisfy regulations, deliver the same information to the back and front offices and improve internal business processes.”
While Citi has grasped the challenges of entity data management and is gaining opportunities as a result, Schlatter noted that some firms are not considering the long-term potential of using the LEI and are taking a short-term, tactical approach of simply mapping the LEI to internal identifiers. Preiss noted pockets of resistance to the LEI in the municipal bond market and the insurance industry, despite the National Association of Insurance Commissioners’ suggestion that insurance firms should use the LEI. Yelle added: “Enthusiasm is growing around the LEI, but where it is not mandated, organisations do not have to buy one.”
Turning to best practices in entity data management, Preiss said: “Best practices have heightened awareness of data quality and raised the issue of how much confidence users can have in the LEI. Confidence seems to be rising as more Local Operating Units (LOUs) are emerging and issuing LEIs within the Global LEI System, including members of the Association of National Numbering Agencies and exchanges. We are on the right track, but data quality will continue to loom large.”
Endorsing Preiss’s view that these are relatively early days for the LEI, Marcus said slightly less than 10% of Citi’s records include an LEI, but noted potential benefit in the uniqueness of the LEI in including information that comes directly from companies. He commented: “As more entities register for LEIs, the quality of counterparty data in the industry will go up. We are tentative now, but we are building infrastructure and as the LEI is more trusted we will become more reliant on it.”
With about 310,000 LEIs issued and industry insiders suggesting the tipping point for wide-scale adoption of the identifier will come when over one million are issued, Engdahl said: “Volume is one tipping point for the LEI, but another is regulators getting behind it and mandating its use rather than suggesting it could be used in certain processes.”
The issue of hierarchy data for the LEI caused lively debate between panel members and the audience, with fulsome agreement being reached on the importance of data hierarchies, but less agreement being reached on how extensive the data should be and how it should be created. Yelle said: “Hierarchy data is not simple to create, but it is valuable and an improvement to the LEI. The industry must drive development and agree rules on the data.”
Responding to a question from the audience considering whether it would be better to add hierarchy data as entities are registered, Engdahl commented: “Hierarchy data is a real issue, but is it reasonable to expect the LEI standard to provide a robust and full view of entity hierarchy data?”
With more questions than answers on the creation of LEI data hierarchies, the session closed leaving open the issue of whether regulators will dictate the hierarchy data that must be put in place, or whether the industry will come together in another standards effort and work out an acceptable solution.