Karla McKenna, director, Citi, Securities and Fund Services and chair of the International Organization for Standardization’s TC68 committee, offers DerivSource an update on the development of the legal entity identifiers including the current design, assignments and likely publication timeframes for this new code.
The Role of the ISO Group & TC68 Committee
The International Organisation for Standardization (ISO), in charge of developing international standards for the financial services industry including the Business Identifier Code (BIC), the International Securities Identification Number (ISIN) and the International Banking Account Number (IBAN), has developed the global legal entity identifier (LEI) that could be used in regulatory reporting as required by the Dodd-Frank Wall Street Reform Act & Consumer Protection Act and other regulations being proposed in other countries and regions globally.
LEI assignments – who is getting a number?
From a scope ‘perspective we were looking at being able to put a legal entity identifier scheme in place that would satisfy both the global needs of financial institutions as well as the needs of the global regulators for systemic risk analysis. Therefore, the LEI must be based on an international standard.
According to what we’ve seen both from financial services firms and from the regulators so far, it is not envisioned that LEIs will be assigned to natural persons but to the parties or structures organized under the laws of any jurisdiction. This means LEIs would be assigned to all financial intermediaries, banks and finance companies, pension funds, mutual funds, all entities that are listed on an exchange, all entities that trade stock or debt, and that are under the review of a financial regulators. This also applies to investment fund organizations no matter how they are constituted whether they are incorporated or constituted in another way such as a trust or a partnership.
What will the LEI look like?
The LEI is proposed to be quite large – 20 characters long, with 18 alpha numeric code plus a two digit check digit. The code was intentionally designed this way so that when the global regulatory and the financial community adopts the scheme they never will not have to alter the structure of the code in the future.
Also the code, unlike some of the standards that many reference data professionals have seen before, has no embedded intelligence in the code to make it more human readable. This is unlike the BIC where the first four characters would characterize an organisation that would be readily apparent to anybody who would be reading it on a database. The LEI is based on a data attribute system, so the code in effect would be dumb but any of the associated data would be able to be interpreted in order to tell what is needed about the legal entity. And we kept the standard proposal very light and very skinny in order to be able to really get down to the attributes that would uniquely identify a legal entity on a global basis.
The official data attributes for the ISO standard proposal at a minimum would include: the official name of the legal entity, the address of its headquarters, the country of the corporation, some housekeeping data (the date of the first assignment for instance), and the date of the last update.
Keeping in mind that there are still going to be many usages by financial institutions and by global regulators for legal entity identifiers, other relevant reference data attributes such as contact information or hierarchical information concerning the entities’ relationships with legal entities within the same family can be included in the repository, but do not necessary need to be part of the core attributes of the standard.
It is important to note that the LEI is but one piece of what is being proposed as a global legal entity utility and identifier scheme to be used worldwide. The code and its data attributes are merely a piece of this. And of course, any data that is placed in the repository would have to be subject to distribution, sharing and data privacy regulations.
Timeframes
The LEI is currently in the development process and entering the second of what could be a possible three rounds of voting within the ISO process. The second round of voting will end on the 14th December 2011.
We have received good support for the LEI standard within the global community and we anticipate that if we get unanimous approval of the structure and technical aspects of the code by mid-December, we would then be able to publish the standard officially in January 2012. If there is anything significant we would need to still address in the first publication of the standard this will be delayed to 2012 with a likely publication date of April 2012. However, we are very hopeful that this standard with the support and the speed at which everyone is working on it would be published and fit for purpose in January 2012.
What’s Next?
The LEI is only the foundation so the next logical step would be to work on standardization for classifying the types of assets that financial institutions hold, trade, transact and to identify the particular trading venues in which they are transacting. And in this case, we will be starting to drill down to the transaction level to support the regulator’s need to collect systemic data. So, within a few years of bringing this data together and keeping in mind these relationships, I think we will see a higher level of reference data standardization and will begin to take advantage of the ongoing improvements to model data, process, transport and store information efficiently.
