Michael Shashoua: Halfway Down the LEI Road

There will be much to watch out for in legal entity identifier (LEI) registration and implementation in the first months of 2013. Right away, there are several important dates to keep in mind: the Jan. 10 deadline for national regulatory authorities to assent to the charter for a global Regulatory Oversight Committee (ROC), issued by the Financial Stability Board (FSB); the March launch of the FSB’s LEI system; and a few different dates for stages of the adoption of the Commodity Futures Trading Commission (CFTC) Interim Compliant Identifier (CICI), an important precursor to the LEI in the US.

Key dates for CICI include the recently passed deadline of Dec. 31 for swaps market participants to adopt the CFTC’s identifier standard; the February 25 deadline for foreign exchange, commodities and equities trades to use CICIs; and the April 1 deadline for all others to adopt CICI.

Bill Hodash of the Depository Trust and Clearing Corp. (DTCC) called attention to an issue with accuracy in the CICIs that have already been registered. Of about 40,000 CICIs registered by the DTCC as of last month, 317 have been successfully challenged by the public, meaning they have been found to be inaccurate. That is less than 1 percent, but that’s just the errors that have been found. In addition, buy-side firms are contending with concerns about the accuracy of registration addresses for companies’ LEI registration filings.

Accuracy concerns have also extended to worries about the duplication of LEIs by multiple local operating units (LOUs), the national authorities chartered by the FSB to administer the identifiers, but those concerns appear to have been successfully addressed, says Hodash. Recent FSB updates on LEI progress have put forward the need for a single global LEI database. “The inference is every LOU would query against that database before issuing any LEIs, to make sure they haven’t duplicated them,” says Hodash. “It may be a little time before we get that.”

Thinking Ahead
Considering the imminence of global LEI implementation by the FSB in March, a surprisingly small portion of the industry seems to be prepared. In polls carried out during two recent Inside Reference Data webcasts, just 24 percent of participants said they had registered themselves for an LEI, and on Nov. 27, a total of 28 percent said their firms had trouble finding time for LEI initiatives or weren’t convinced of the LEI’s importance.

The FSB’s March launch of its LEI system was never intended to be the end of the process—it’s the beginning of having the mechanisms available.

The LEI’s overall importance, as David Wright, secretary general of the International Organization of Securities Commissions (Iosco) reminds us, isn’t just reaction to the 2008 financial crisis, but also to keep pace with the growth of securities markets and market-based financing. Emerging markets including Indonesia, Turkey, Russia, Mexico and China, are growing at 5 to 6 percent per year, Wright notes. “The LEI is important today in a static sense, but even more so in the future as these big securities markets grow around the world and we interconnect more and more,” he says. “Let’s think about LEIs, not just today, but in 20 years’ time.”

While the industry has come a long way from a year or two ago, when the FSB and regulatory authorities had not yet sorted out who would be administering the LEI and how registration authorities would be set up in jurisdictions worldwide, the process is clearly not yet complete.

All industry participants will need a second wind to push through the rest of the way—getting their registrations done, and sorting out issues around making sure those identifiers are accurate and complete. The FSB’s March launch of its LEI system was never intended to be the end of the process—it’s the beginning of having the mechanisms available. The polls Inside Reference Data conducted this past fall in our webcasts, while just a sample of industry opinion, did show that about two-thirds of the industry sees LEI implementation as a three-to-five-year or five-to-10-year process.