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Swift Confirms Plans for BIC in Business Entity Identifier Space

Following months of industry speculation about whether it had dropped the idea altogether, Swift has finally confirmed its plans for the Bank Identifier Code (BIC) in the area of business entity identification. Swift indicated at the start of the year that it was reviewing the business case for introducing an international business entity identifier (IBEI) and it seems that after a period of reflection, it will be extending the BIC to cover non-financial institutions. However, its request for an extension of the BIC standard, which was submitted to ISO TC068 last month, only covers financial messaging and is not an all-encompassing IBEI.

Peter O’Keefe, senior manager, broker-dealer services at Swift, explains that Swift’s work with the EDM Council and consultancy firm BearingPoint with regards to the IBEI (Reference Data Review, May 2008) indicated that the industry is not yet ready for its introduction. The conclusion of the joint research with the EDM Council was that none of the participants were able to quantify the value of a very broad entity identifier.

“The large institutions employ local solutions to manage their internal entity identification and an external identifier would be nice to have, but really wouldn’t help them in terms of additional cross referencing benefits, building hierarchies or reducing costs with respect to subscriptions data. The smaller institutions were keen on the idea of an IBEI – they haven’t been able to articulate the case for an internal cross referencing system and they would be keen to share in a community based solution. But again they were not able to justify in any measurable way the value of an IBEI,” he says.

However, O’Keefe clarifies that work is still continuing in terms of trying to measure the value of an IBEI. He reckons there are some fundamental questions that first need to be answered before an IBEI is introduced: “Which set of data should be included in such a project? What problems would it solve? It is really a case of identifying the problem and quantifying how much it is costing them. Without identifying what the problem is, we cannot identify what the nature of the solution will be.”

Swift has often been asked to step into the role of a registration authority in the context of the IBEI and in the past it has shied away from that role, says O’Keefe. “This is for a number of reasons but it is primarily it is because it is too hard to identify where the end of the corporate space is and we are now working in a very limited scope around participants in financial telecommunications,” he explains. “People that are talking to each other – bank to bank originally, and financial institutions and corporates that have joined our network. There have also been requests to identify financial institutions that act as agents for corporates or fund managers in the context of a financial message.”

This goes a long way short of identifying all the corporates in the world. “We looked at that space, not as a commercial entity but as an industry body to see whether the community had a requirement for international business entity identification. We wanted to see what the case was and whether we could limit the scope of the case,” adds O’Keefe.

Jean-Marie Eloy, senior manager, standards, Swift, continues : “If there were a business case to introduce an IBEI (that is an international identifier for all business entities worldwide), it would be very costly to maintain a global directory of IBEIs.”

The IBEI proposal by ISO last year, which focused on all business entities involved in the securities industry, was rejected because they proposed to create a brand new code, whereas actually the BIC that Swift is maintaining is already recording and identifying financial institutions involved in the securities industry, says Eloy. “That was one of the reasons to reject the proposal. The countries that voted against the proposals said that they would prefer to use existing codes including the BIC and domestic codes for corporates,” he adds.

The proposal that Swift submitted to ISO last month to extend the BIC to corporate entities is addressing one of the demands from the industry last year, Eloy contends. “The vote last year confirms that the industry would prefer to use existing codes to identify corporates in financial messages. The proposal does not address the global scope of the IBEI; it is only proposing a solution for the identification of financial institutions and corporates that need to be identified by an international identifier in financial messages. We will keep the same format as we use currently and we have already started allocating BICs to some corporates,” he clarifies.

However, the BIC has come under fire from critics who believe it is not an appropriate format for business entity identification. O’Keefe admits that criticism over the lack of the BIC’s uniqueness at an entity level is justified: “The BIC is more granular than the IBEI scheme that was being examined. The IBEI is looking for a unique code that refers to one entity whereas the BIC currently has multiple BICs relating to one entity. So there has been a criticism in the past about whether we can identify one of these BICs as the primary identifier for the entity.”

This would be a problem if Swift were looking to introduce it as an IBEI, he adds, but it is only allocating BICs to corporates who need to be identified within the scope of financial messaging. “We are not looking to provide a code for any context. Within financial messaging, we will be looking at whether providing additional codes adds value to that context,” O’Keefe says.

ISO is also reviewing its position on the IBEI, says Eloy: “The ISO working group in charge of the IBEI had a meeting last month to discuss the extension of the BIC also. They have proposed to change their scope, so as well as the extension of the BIC, they will focus on a specific area: issuers of securities. It would no longer be called an IBEI, it would be a securities issuer identifier and the project would be limited to that area.”

O’Keefe reckons that as Standard & Poor’s, Telekurs and the London Stock Exchange are the registration authorities for the instrument identifiers (ISIN codes), they are a natural choice to become the registration authority for issuer identification.

As for the practicalities of Swift’s own plan, Eloy elaborates: “Corporates will either come to us for a BIC or they would be sponsored by a financial institution that wishes to allocate BICs to its corporate clients or counterparties. The demand will not likely come from corporates but rather from financial institutions that wish to identify corporates in their messages.”

With regards to next steps, the proposal to extend the BIC was distributed across the ISO member countries for approval and the deadline for this approval is the 12 September.

“In September we will receive the comments from ISO members on the BIC extension proposal. If the proposal is approved as is, the amended BIC standard could be issued by the end of the year. If not, we will have to amend the document as requested. An ISO working group would then be formed to work on the comments and draft a new version of the standard, which would go through the ISO approval process and could take another year,” concludes Eloy.

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