Michael Shashoua: Global LEI Nuances

The Depository Trust and Clearing Corp. (DTCC) estimates that 50 percent of all the global legal entity identifiers (LEIs) are likely to be preceded by or derived directly from the US-generated CFTC Interim Compliant Identifiers (CICIs). With this high US involvement in mind, does the news that the Financial Stability Board’s (FSB’s) March 2013 LEI deadline is really just for the set-up of local operating units (LOUs) mean that the gap between global and US implementations of the LEI is widening? 

The March deadline had been understood to mean that the global LEI assignment system would be in production. Even with the deadline now applying to prior steps in the process, many countries still need to pass legislation and set rules for LEI standards, as a pre-requisite for establishing those LOUs. Expecting that to happen in six months, even in an harmonious legislature such as the one that exists in Canada, could be overly ambitious and unlikely.

The FSB emphasizes that it expects to endorse a charter for the Regulatory Oversight Committee (ROC) in October and anticipates the Group of 20 (G20) nations endorsing a ROC charter in November. The ROC precedes the creation of the Central Operating Unit and the LOUs. That could still keep the industry on track for the lesser goal of launching LOUs by March, depending on how the political process plays out in at least the largest markets’ countries.

Even so, the change in the expectations about what will happen in March and the fact that Swift and the DTCC already have a portal available for LEI registration in the US certainly does put the US that much further ahead of the rest of the world in implementing the LEI standard. This outcome was no surprise to data operations consultant Ed Ventura.

“With the number of jurisdictions involved and the number of banks required to implement the LEI, the timeframes were aggressive,” he says. “I was hoping it would have been in use as stated, but I’m not giving up on the concept.”

Taking Their Time
The counterargument in favor of taking more time for LEI implementation beyond March is to make sure LEI is done correctly. Considering the cause for all the effort to establish an LEI standard—the need to better track securities in the event of another major firm failing or another financial sector crisis—that argument does seem valid.

There is still uncertainty about who the FSB will favor to administer the standard, much less who LOUs might turn to or work with. The CFTC chose Swift and the DTCC for CICI, which runs on the ISO 17442 messaging standard just like the LEI, but the International Organization for Standardization pulled back its support for Swift as an administrator in May, and the FSB has not since backed any other organization for the role.

Could the CFTC’s support for Swift and the DTCC influence the FSB that those organizations have merit as administrators? It’s curious that the FSB hasn’t yet designated any organizations to implement the LEI and has, in fact, increased the time that most countries will have to implement the standard. Too much more inaction for too long might leave the US as the only major market, or even the only market in the world, that has these identifiers.

A single-country LEI that no one else follows seems like a weak measure for trying to address global market issues, if that turns out to be the end result of what we’re seeing, or at least the state of affairs for the next year or so until those who do make that March deadline are able to implement identifiers.