Despite ESMA quietly delaying the timeline for Trade Reporting under EMIR to February 2014 (90 days + 5 after the predicted approval of the first Trade Repository in November), firms are now being faced with important decisions in how to implement the LEI.
Discussion are required to address what regulations are there that require an LEI, what types of entities can and should be registered, and what requirements are there to register with local pre-LOUs? There are now 13 pre-LOUs that have been approved and registered, but not all have pre-LEIs available, and it is unclear whether the pre-LEIs that are available will meet their regulatory purposes.
One of the problems is that the US and EU are currently in a tug of war over the equivalence of their OTC reforms and the LEI is caught in the middle. The problem being that, while the LEI’s Regulatory Oversight Committee (ROC) has provided for mutual acceptance of Pre-LEIs, and the CFTC has said in their amended order that they are happy for EU firms to use CICIs, ESMA has yet to reciprocate. This stalemate currently means that firms will be unable to use the same identifier for both Dodd-Frank title VII and EMIR reporting, as well as fundamentally challenging the ‘uniqueness’ of the LEI.
Part of the impediment to this is data quality. According to SWIFT in June, 28% of CICIs remained uncertified, meaning that their data is potentially unreliable. This has led to the CICI utility removing 18,000 records from its database. These records are part of the tranche of 22,000 records that DTCC imported to the CICI utility when it went live in 2012, before the FSB ruled that 3rd party registration would not be allowed.
Additionally, differences have emerged between the different pre-LEIs, and the final specification of the LEI remains uncertain. Unlike the German GEI, the LSE’s Interim Entity Identifier (IEI) contains no additional fields for information on entities’ sector or jurisdictional court nor does it contain the CICI’s information on its expiry date. According to the LSE’s FAQ, the reference data to be associated with each entity aligns closely with the ISO standard and remains comparatively sparse compared to other pre-LEIs.
According to the LSE “Any Entity with a legal personality or structure that is organised under the laws of any jurisdiction, excluding natural persons, is eligible for an LEI/Pre-LEI/IEI, regardless of regulatory requirements.” They go on to provide explicit instructions to fund managers wishing to bulk register their entities. These registration allowances may prove to be controversial as funds and branches are currently in a grey area in the LEI’s Regulatory Oversight Council’s deliberations over the final standards for the global LEI system.
These issues are producing a great deal of uncertainty for those having to define their approach to the LEI now. Without clear guidance on the status of the LEI firms will be continually second guessing the validity of their approach to LEI registration.