Trade reporting for EMIR begins in February 2014 and firms are beginning to register their entities (and their clients) for LEIs in order to meet the deadline. However, registration volumes are set to increase as the EBA’s recent consultation paper indicates that the LEI will be used for CRD IV risk reporting, significantly expanding the scope of LEI registrations.
The number of entities required to register for risk reporting is a considerable increase over the number required for EMIR, i.e., trading entities. Some estimates place this increase in the region of 900%, i.e., a firm that is required to register 500 LEIs for EMIR will need to register 5,000 for risk reporting.
As LOUs have only been approved for a few months, firms have had only a small window to register their trading entities. This means that for the purposes of EMIR, we can expect a large rush of registrants in the run-up to the February trade reporting deadline. LOUs are currently constrained in their ability to register, due to their reliance on manual registration validation, with only an average registration capacity of 15 LEIs per day. Although this is only one data point, this is indicative of a manually intensive system that will not scale quickly and with the quality levels required.
As a result, many are concerned that the capacity of current LOUs to process the number of LEIs that firms will require may not be sufficient for the EBA’s current timeline. Each LEI registration will have to go through a validation phase, deduplication checks and issuance procedures. Processing the many thousands of registrations resulting from the entirety of the EU financial sector attempting to comply is likely to take some time.
According to SWIFT, registering only the EU investment fund industry would double the current database of BICs. If this had to be done one-by-one under the FSB self-registration principles, as with the LEI, using e-forms and validation rules, SWIFT estimated it would require roughly 2,000 man-days just to register them for the BIC.
Our work with the industry has indicated the existence of upward of a million legal entities in Europe. Even presuming that the scope of CRD will cover 250,000 legal entities, this is still more than twice the current size of the global pre-LEI population, which is already bigger than the Swift BIC database. Presuming 150,000 would need to be registered, 10,000 man-days would be required by the pre-LOUs just to verify and register them.
If this effort is required, it would at the very minimum need some kind of automation. But the requirements definition, development lead time and deployment would also need time and effort. Clearly, there is a real risk of the system ‘bottle-necking’, leaving firms without the LEIs needed to report under EMIR in February.
Without regulatory delay, it seems that the timeline for firms to register LEIs will not be enough.