The industry is at a turning point for laying the foundations for global reporting success through the new legal entity identifier (LEI). The G20 has asked for the identifier to be launched by March 2013 – a mere 100 business days from now.
The LEI will set fundamental precedents for future reporting standards, before even more complicated work is carried out on product identifiers, industry codes and other identifiers required for ‘apple to apple’ comparisons between data. If missed, this opportunity to get the regulatory community aligned may not come again anytime soon. Without a firm view of how to overcome the implementation issues the rapid regulatory ‘mandate’ for the identifier may be delayed for a number of years.
The target operating model for the LEI system is a threetier structure consisting of the Regulatory Oversight Committee, which will have ultimate responsibility for the governance of the global LEI system; the Central Operating Unit, with responsibility for delivery operations; and Local Operating Units, which will be the local implementers of the global system. The highly federated model will require a lot of operational issues to be worked out. The FSB is pedalling hard to get clarity. It has empowered a new Private Sector Preparatory Group (PSPG) to help work through the implementation issues.
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- What will the final technical details of the LEI look like and when will they be available?
- Will EU pre-LEIs become the industry standard for compliance with regulatory reporting requirements?
- When will the Central Operating Unit (COU) be established and operational?
With 170 members from 30 jurisdictions, the PSPG’s ostensible goal is to focus on solving each of the legal, operational and technical problems that make up the vast, growing global jigsaw puzzle that is the LEI. The industry awaits the work of this heterogeneous group of academics, consultants, vendors and financial institutions to define the thorny details. The next checkpoint is the 15 October LEI ‘solution demonstration day’ when we will see just how much progress has been made. To keep the industry further clued in, the FSB has announced it will release LEI progress reports “approximately” every three weeks.
However, the world is not standing still waiting for the PSPG results. As we write, new rules are being inked that require identifiers … of some sort. So far, none of these has been able to explicitly state that they will only accept an LEI. This means that regulatory reporting teams are left trying to explain to their masters why anything needs to change with the status quo. Yes, we are right now creating the opportunity for CXOs to opt for another mapping column. As they were the instigators of the LEI, US authorities, anxious to give the industry clarity on what is required for new OTC reporting, gave the go-ahead to DTCC/SWIFT in July to provide the ‘temporary LEI’, or CFTC interim compliant identifier (CICI), for two years.
According to Commissioner O’Malia, for the global LEI this news is “not as good”, despite being “good news” for the CFTC, offering demonstrations and opening an online portal for 24,000 CICI identifiers.
In the EU, after intense debates about the content, the European Markets Infrastructure Regulation (EMIR) has finally become law, meaning an OTC identifier will now be required from July 2013. However, there is still one more step to go as the European Securities Markets Authority (ESMA) now needs to define the exact wording about what identifier will be used. Current drafts do not look like they will demand that only the LEI be used.
The European Banking Authority, the risk reporting regulator, has a similar challenge to their cousins at ESMA. COREP and FINREP reporting will also require identifier standards in 2013. Few would expect them to do anything other than follow ESMA’s lead.
In Asia, the Monetary Authority of Singapore announced, in a recent OTC clearing consultation, that it will “take into account the LEI for reporting and classification”. The Hong Kong Monetary Authority went a step further and committed to adopting the LEI for its OTC regime if it exists soon, but similarly will default to an interim identifier if it still finds itself waiting when the text becomes law.
Will local regulators mandate the specific use of the new LEI code? It is not looking terribly likely in the short term. However, it is only once the industry understands the full set of real, hard consequences of not having an LEI code, that we can tell whether it will become the new reality. With a deadline of March 2013 to produce the first iteration of the LEI, the timeline is very tight to keep the global identifier conversation on track.
- Actions taken by regulators and firms with interim identifiers are already underway.
- New mapping table requirements are the order of the day
- Firms may have to take multiple steps to implement various identifier regimes across borders
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- Produced a response to OFR consultation on LEI
- Formed the special interest group GRIS (Global Regulatory Identifier Steering group)
- Participated on the steering committee which produced the requirements for a global LEI
- Produced a CDMG CFTC letter regarding US LEI requirements Produced a consultation response to the FSB G-SIB paper Analysed FSA requirements and their suitability for the LEI.