As markets coalesce across systems and nations, the financial industry is faced with a new challenge.
Thanks to new information technology, products and services are more integrated than ever. EU legislation, such as Basel II, the Transparency Directive and MiFID, is on the increase. It is now incumbent upon the financial industry to come to terms with technological and structural change, and to consistently guarantee legally stipulated transparency. The usual methods of implementation will, however, not suffice.
Valid and coherent arrangements must be made in the form of standards to facilitate the integrity of data exchange and information processing. In this scenario, the availability of suitable information has become a deciding factor in competition. In contrast to the predominantly favourable national framework, the international environment is still characterised by high inefficiency. The latest reports on the implementation of the recommendations of the Group of 30 state that these are primarily: insufficient regulation by the authorities at EU and international levels; inadequate standards in respect of data content and in respect of procedure; and the insufficient application of proven standards through protectionism. The financial industry is nonetheless constantly confronted by new parameters, searching for innovative ways of guiding the change process, while dealing with national and EU regulations related to financial services globalisation.
To facilitate global STP despite the increasing complexity and internationalisation of financial services, standards are needed to structure and format the multitude of international financial instruments. Information service providers are advancing this process by participating in committees such as DIN (Deutsches Institut für Normung), ISO (International Organization for Standardization), ANNA (Association of National Numbering Agencies) and ISSA (International Securities Services Association), thus making a vital contribution to international market harmonization.
Important outcomes of the standardisation process are being integrated into services, especially in respect of financial instrument identification (ISIN – International Securities Identification Number) and characterization (CFI – Classification of Financial Instruments).
Standards are available to clearly define markets and trading systems (MIC – ISO 10383) as well as legal entities (IBEI – ISO 16372), and to allow for the unequivocal depiction of the codes needed for trading, settlement and reporting. These standards are supplemented by arrangements between counterparties as to the form and content of their communication (eg messages as per ISO 15022/20022). Given the integration of the international financial markets and the enormous exchange of information and data, efficient IT applications can only be developed on the basis of consistently applied standards.
The regulations arising from the MiFID, for instance, require the unequivocal identification of issuers, banks, funds and brokers on the European level. Existing standards such as the BIC (Bank Identification Code) cannot adequately meet these demands as such standards do not contain the characteristics necessary for one-to-one identification. Such one-to-one relation between parties is a necessity for the exchange of transaction reporting notices between supervisory agencies, but this is not guaranteed through the use of the BIC. National identification codes, such as tax numbers or codes allocated by supervisory agencies, cannot be applied due to incompatibility in the exchange of data between agencies.
At this time, the IBEI is the only available standard applicable to MiFID, despite the fact that MiFID does not specifically prescribe the IBEI. Since Swift and ANNA wish to reserve judgment on the IBEI Registration Authority issue, the progress of WG8 is being advanced through the sponsoring of certain countries that have chosen to secure the availability of the IBEI. These countries are prepared to allocate the IBEIs in their respective domiciles, and may extend this activity to the remaining member states in accordance with the Substitute Numbering Agency principle.
The countries in question have agreed to exchange information amongst themselves on the IBEIs they have allocated, in order to create uniform data coverage on a Europe-wide basis. This procedure will ensure the timely implementation of the requirements posed and will avoid unnecessary expense. The use of the IBEI will allow the above-mentioned efficiency improvements to be realised while supporting the intention of MiFID, thus allowing content not specifically required by MiFID – but nonetheless necessary – to be provided to the entire EU.