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What’s in a Name?

If there was one topic that dominated this week’s FIMA conference in London, it was the subject of legal entity identification. In line with the developments in the US around setting data standards at a regulatory level via the Office of Financial Research, Ken Price, CEO of the Depository Trust and Clearing Corporation’s Avox business, kicked off a whole host of impromptu discussions by informing delegates of the potential evolution of a reference data utility to provide both instrument and entity IDs to the market, facilitated by the DTCC itself and potentially supported by a body such as Swift acting as the registration authority.

Confirming the rumours that have been circulating since the acquisition of Avox by the DTCC back in July, Price indicated that the DTCC has engaged with the regulatory community in order to discuss the requirements for such a utility and noted that 2011 may see such an idea come to fruition. One of the biggest hurdles (and there are many) will be the decision around which entity identifier should be used by such a utility, given that there are no universally adopted legal entity identifiers in the market.

To this end, Price noted that rather than focusing on its own Avox identifier, the AVID, the DTCC provided utility would be “identifier agnostic”; so the floor is open to all players. But which identifier will the regulatory community opt for? If it’s relying on the industry to push it in a certain direction, will it get enough feedback to make the right decision? Will it get a fair and representative view of the industry from the individuals it asks? These are all very important questions that must be answered, and quickly.

Swift obviously has its own project rumbling on in the background around developing the Bank Identifier Code (BIC) into a legal entity identifier and it is rumoured that the Swift exec will be voting on whether to go forward with the initiative before the year is out. However, not much has been said publically about the work going on around the identifier and until approval has been achieved (or not), this will likely continue to be the case.

The BIC has obviously caught the attention of the regulatory community – with both the Committee of European Securities Regulators (CESR) and individual national regulators such as the UK’s Financial Services Authority (FSA) referencing it as a suitable identifier for transaction reporting under MiFID. But is the industry on the same page as the regulators?

There is some degree of debate at the moment about how, or even if the BIC should be developed to act as a more general entity identifier for the market, rather than its current function as a bank identifier within the framework of the messages carried across the Swift network. Just look at the comments made about “bastardising” the BIC at a MiFID Forum earlier this year for proof of the negative attitude of some to the idea or comments made by my panellists at a seminar we conducted earlier this year on counterparty risk.

Others are keen on the BIC, but there are issues that need to be resolved before it can move forward. Regulators are keen for country codes to be embedded in the standard to allow for jurisdictional clarity, whereas a number of FIMA delegates indicated they are keen for such codes to be left out and for the identifier to be a “dummy” identifier. This is in order to prevent data management challenges downstream, should a company change location. A dummy code would also circumvent the problem of having to alter or discard BICs when a merger or acquisition takes place. However, the BIC currently does include a country code and this could prove a bone of contention.

Moreover, if ISO has struggled for such a long time on the subject of entity identification, does another body have a better chance of achieving global agreement on the subject? What will happen if the US goes one direction and Europe decides to go another?

The utility discussions were not the only entity identifier related discussions on the floor of the conference. The sudden decision by Cusip Global Services (CGS) to make its Cusip Avox Business Reference Entity (Cabre) identifier free to the CGS user community certainly caused some raised eyebrows on the show floor. However, given the pressure it is coming under from both the regulatory and client communities , this move is not particularly surprising. How it will impact the fortunes of the Cabre going forward is anyone’s guess.

One thing’s for certain, however, and that is that standardisation will be on the agenda for some time to come. Furthermore, if the results of a recent poll by ISITC Europe are to be believed, the majority of attendees to its recent conference reckon an “acceptable” entity identifier will be in place in the next two to five years (see the results below). Let’s hope they’re right.

 

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