Tine Thoresen: Money Matters in Paying for Universal Business Entity Identification

While gossip magazines around the world continue to dwell on who will foot the bill for the various features of Prince William’s royal wedding in the UK, the reference data industry is in the midst of its own debate over money. However, it’s not all about stags and hens for data managers. It’s about a completely different animal—the legal entity identifier and how it will work in practice.

The Office of Financial Research’s (OFR’s) call for universal business entity identification has recently been the top conversation-starter, as the industry had until the end of January to respond to the statement on the topic from the OFR. The comment letters have now been made public, but there are still a range of unanswered questions.

Footing the Bill
One of these is who will pay for the data maintenance and operations. The options discussed in the data management market include the possibility that the industry could pay for it, or, alternatively, the OFR might cover the set-up costs, or that the entities that need to be part of the database could pay—or that a combination of any of these could end up footing the bill.

The comment letters make it clear that there is agreement on the fact that the industry needs a unique global identifier for legal entities—and that this has to be made freely available to the market. But for some industry leaders, the question that has not been addressed so far is: “Since when did shareholders start asking for companies to invest in free services?” In other words, many solution providers will be looking for someone to cover the costs of the services they offer for free as part of a regulatory initiative.

Based on the comment letters, 20 organizations want to play a part in solving this problem. The actual identifier can probably be assigned on a cost-recovery basis, and regulators have highlighted that the identifier needs to be free to use. The more topical debate is on the other data elements that could be made freely available as part of the proposals. These data elements, such as legal name and jurisdiction, will have to be collected and validated, and there is a cost associated with doing this work and making the data publicly available.

Clarity
The utility with these core data elements could also potentially include even more fields. There is yet to be clarity on what the regulators mean by core data elements, and some would argue that hierarchy information should also be part of the utility.

The Depository Trust & Clearing Corp. (DTCC) is one of the organizations that wants to operate a utility like this, and it proposes no fees or restrictions. Instead, alternative funding models are currently being discussed.

For some, it would make sense that the regulators cover the set-up costs of the utility for legal entity information, but considering recent spending patterns, I think it is more likely that firms benefiting from the utility will be forced to cough up. It’s already been pointed out that large financial firms will have to pay for the OFR, so if this organization will appoint an industry partner to operate a utility, I’m assuming the costs associated with that could be considered running costs.

It is, of course, great news for the industry that a global legal entity identifier is likely to become a reality in the near future. But money matters. Someone will have to pay for this, and that someone is not likely to be the taxpayers. That was what the royal lovebirds seemed to want to highlight when planning their wedding, and it is also what regulators have underlined when introducing new regulation in the financial services industry. Data consumers: Watch out for unexpected bills.