Michael Shashoua: The Crawl of Progress

The Financial Stability Board (FSB) and its position on standards for the legal entity identifier (LEI) were the subject of last month’s column, and just after that was published, the board issued its anticipated report about its intentions. The FSB presented the Group of Twenty (G20) finance ministers with a three-tiered structure consisting of a global governance body called the Regulatory Oversight Committee (ROC), a central operations arm for LEI called the Central Operating Unit (COU), and Local Operating Units (LOUs) to administer LEI systems in individual countries.

The LOUs will have some degree of discretion on how to run the LEI standard—whether it will guide exchanges to make their issuance part of their utility or whether companies and market participants will all have to take care of assigning LEIs themselves, FSB officials say. The FSB’s report to the G20 did set a deadline of March 2013 for the LEI system to be fully functional, after being first established by November.

However, the report is long on general recommendations and verbiage, and a little short on specific steps toward complying with the standard. The FSB approved the ISO 17442 standard shortly before issuing the report, but has held off fully backing the industry’s favorite choices to administer the standard—the International Organization for Standardization (ISO), Swift and Anna.

Where does that leave firms in the industry that are wondering about how to comply with the standard? Tom Price, managing director and head of the technology, operations and business continuity planning group at Sifma, recently told Waters’ sibling publication Inside Reference Data that there were still questions about how to implement the principles for the LEI set out in the FSB’s report.

Changing Regulatory Priorities
Even with the ROC/COU/LOU structure now set up, cross-border discrepancies on the LEI are still possible, as long as the definitive standard is not yet determined or in place, says Ed Ventura, president of consultancy Ventura Management Associates. While international regulators have come together relatively quickly on LEI standards plans, they may now be distracted by broader issues with the European Union, he adds.

“The conflict going on in the Eurozone is a far bigger issue that the regulators are trying to see their way through,” says Ventura. “We’re concerned with the balance of trade, massive amounts of public debt, and debts issued in the form of securities. It seems as though we have a good handle on those. If we hadn’t, I would see there being more of an emphasis on the identifier. The debt crisis has developed through labor disputes, social program issues and their fiscal impact. It’s less centred on the relationship of securities to those issues. So I’m not sure what type of attention will be diverted into resolving identifier concerns.”

Unanswered Questions
There are other hurdles to getting that definitive LEI standard—the first being the US Commodity Futures Trading Commission’s (CFTC) own interim identifier. Swift and the Depository Trust & Clearing Corp. (DTCC), which both have to play a role in the LEI, had to delay their LEI Utility Portal plans because the CFTC’s designations for the identifier were incomplete. In addition, Sifma has its questions about what the FSB’s structure means, other industry participants are asking about how to harmonize different LEI plans coming from different bodies, and there is still a window for different LEI administrators to be tapped, as some in the industry are suggesting.

As the global LEI system does march toward that November launch and March 2013 full functionality, there are still a lot of open questions, perhaps more than there should be. It’s time to bear down and resolve some of these issues.