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A-Team Insight Blogs

Talking Reference Data with Andrew Delaney: LEI Progress Report 4

In a fourth progress note on the development of a global legal entity identifier (LEI) system, the Financial Stability Board (FSB) has named Switzerland as the likely home of the global LEI foundation that will operate the LEI system’s Central Operating Unit (COU). It also set out the preliminary criteria for the selection of a board of directors for the foundation and detailed policies aimed at reducing the number of entities with multiple pre-LEI identifiers issued by Local Operating Units (LOUs) acting ahead of the introduction of the global LEI system in March 2013.

If these are positive gains, one major stumbling block to successful implementation of an LEI system that will support effective risk aggregation remains. Reviewing progress on proposals for required entity relationship data, the note states: “The proposals under development embody an initial step where relationship data collection leverages from the accounting consolidation approach and would then be incrementally built out to develop a flexible, automated system for more general relationship data over the medium term. Local data privacy and confidentiality restrictions may have a major impact on the sharing of relationship data. The Implementation Group (IG) and Private Sector Preparatory Group (PSPG) are reviewing such issues.”

The issue of entity relationship data has been bubbling under the surface of the LEI system development for some time, with industry participants and data vendors pointing to the critical need for accurate and consistent data hierarchies if the global scheme is to work effectively.

Many say the issue of reference data should have been addressed earlier in the development process and there are no signs in the fourth progress note that great advances have been made, with the note reiterating information published in November after the Regulatory Oversight Committee (ROC), which is pivotal to the system, was endorsed by G20 financial ministers and central bank governors. As before, the progress note states that recommendations on additional reference data on the direct and ultimate parents of legal entities and on relationship data more generally will be made at the first meeting of the ROC, which is due to be held at the end of January 2013.

 

The progress note also lacks detail on exact operational plans for the global system, another issue of concern to market participants, data vendors and IT solutions providers. The note reports work by PSPG members to build on business processes and use cases presented by potential suppliers at a joint PSPG and IG meeting in October. Separate work streams are addressing business architecture, data architecture, and standards and protocols, with the PSPG aiming to prepare what the note calls ‘clear proposals and recommendations’ by the end of the year. These will then be considered by the ROC and board of directors of the global LEI foundation once it is in place.

As discussed in the FSB LEI report published in June 2012, the overarching issue of operational development is how to draw effectively on local infrastructure to deliver a truly global federated LEI system with a ‘logically’ centralised database of unique LEIs based on consistent standards, protocols and procedures that appear seamless to users. Clearly time is of the essence here, too, as consideration of PSPG proposals at the ROC meeting at the end of January 2013 leaves little time for final decisions and implementation ahead of the start of the system in March 2013.

If these are two fundamental issues the ROC must consider in January, it will also have to address proposals on the more advanced issues of the location and legal form of the global LEI foundation, the appointment of the board of directors of the LEI foundation, and the smooth transition of pre-LOUs and the pre-LEI identifiers they have issued under FSB guidance into the global LEI scheme.

Time, as usual, is of the essence.

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