Tim Lind, global head of regulatory solutions at Thomson Reuters, discusses the development of the Global Legal Entity Identifier system to date and the infrastructural changes market participants should consider to ensure compliance
What are your thoughts on the development of the Global Legal Entity Identifier (LEI) system to date – has regulatory support been sufficient and is the aim of developing a global entity identification standard attainable?
In the last five years, the LEI initiative has gone from a concept paper to a viable global infrastructure. Today, it connects a network of dozens of local content providers to a central authority that has already published more than 400,000 records. By any measure, a lot of progress has been made in a short amount of time. Such momentum comes as a result of the endorsement and unprecedented support of regulators, industry associations and market data vendors that have integrated LEIs into their services. If we look at the current market environment, regulations such as the Markets in Financial Instruments Regulation (MiFIR), Solvency II and the recent Financial Transparency Act specifically call for the use of LEIs in all forms of regulatory disclosure. We believe that making the LEI the global standard for entity identification is simply a matter of when, not if.
What role does the Global Legal Entity Identifier Foundation (GLEIF) play in the advancement of LEI adoption and how does Thomson Reuters in particular support the GLEIF?
We see the GLEIF as the functional and technical trustee of the LEI standard itself, ultimately responsible for the operational integrity of the whole system. The GLEIF has worked hard to establish the appropriate governance framework and overall charter and must now shift its focus to more operational matters. To ensure the integrity of the system, it needs to oversee and accredit local market players and focus on quality of data and coverage across different entity types.
In addition to sourcing LEIs from the GLEIF and including them in our own services, Thomson Reuters maintains its own global infrastructure to collect legal entity information from authoritative sources around the world. By comparing the results of our data operations to the GLEIF data, we believe we can make a valuable contribution to the overall data quality of the LEI.
What infrastructural and/or operational changes should organizations implement in order to ensure compliance with the global LEI regime?
It is incumbent on each institution to assess which business applications and functional processes will use LEI. At a minimum, we expect core databases to be extended to support LEI as an alternative ID for entity records on customers, counterparties, and issuers. As more regulations such as MiFIR promulgate the use of LEI in transaction and risk reporting, firms must capture LEIs and integrate them into reporting applications and data warehouses. Beyond reporting in over-the-counter (OTC) markets, Know Your Customer (KYC) and client onboarding will be the next critical process to drive adoption of LEI. Trading institutions need to also prepare a governance process to register and recertify their own LEI information in the system. Guidance from the European Securities and Markets Authority (ESMA) suggests a "no LEI, no trade" requirement so it will be a necessity for organizations to keep data current.
Can organizations derive benefit beyond compliance? If so, how?
The first phase of enterprise data management (EDM) focused on instrument reference data, but EDM 2.0 will focus on managing entity data across customer, trading counterparties, and issuers of securities. Getting the entity reference data correct is the foundation to be able to accurately aggregate, report, and mitigate risk. The LEI will certainly play a role in risk data aggregation by helping connect trades and exposure to customer and counterparty relationships.
What would successful global adoption of LEI look like? And what role should the GLEIF, banks and institutions, as well as vendors such as Thomson Reuters, play in driving greater adoption?
It has become conventional wisdom that global LEI adoption will require regulatory mandate. However, if leading banks made it market practice to require that institutional customers have an LEI to obtain banking services, adoption would be a matter of course. The role of the vendors is also critical. For example, Thomson Reuters has already included the LEI as part of its legal entity data services and is working with customers to increase awareness and understanding of the benefits. The GLEIF must also continue to show leadership and partner with market participants to constantly improve quality and coverage of data. Ultimately, we see market participants, not government, as the key to driving global adoption.