ROC Policy on Level 2 Data
Following a public consultation carried out in 2015 by the Regulatory Oversight Committee (ROC), on 10 March 2016 the ROC published the document, entitled ‘Collecting data on direct and ultimate parents of legal entities in the Global LEI System – Phase 1’, available for download below. The paper describes the policy design of a process for collecting ‘Level 2’ data on ‘who owns whom’, to complement the existing ‘Level 1’ data on ‘who is who’.
The main features of the ROC document are summarized as follows in the report:
- Entities that have or acquire an LEI would report their ‘ultimate accounting consolidating parent’, defined as the highest level legal entity preparing consolidated financial statements, as well as their ‘direct accounting consolidating parent’. In both cases, the identification of the parent would be based on the accounting definition of consolidation applying to this parent.
- Accounting definitions were chosen as a starting point as the ROC concluded that their practical characteristics outweighed limitations caused by the fact that they are designed for a different purpose, i.e., to report relationships to investors on a going concern basis. These practical characteristics are that: (i) they are applicable to both financial and non-financial companies; (ii) their international comparability has increased, following greater convergence between IFRS (International Financial Reporting Standards) and US GAAP (Generally Accepted Accounting Principles) on the scope of consolidation; and (iii) they are widely used, publicly available and their implementation is periodically reviewed by external auditors.
- The information collected would be published in the Global LEI System and therefore freely available for public authorities and market participants. However, to allow examining issues associated with collecting data on parents that do not have an LEI, data related to parents without an LEI will initially not be published. At this stage, the Global LEI System will only record relationship data that can be made public, in accordance with the applicable legal framework.
- Entities would report relationship information to the LEI issuing organizations of the Global LEI System, who would verify the relationship information based on public documents if available (e.g., list of subsidiaries in audited consolidated financial statements; regulatory filings), or other sources.
- Information on parents would be part of the information that must be provided in order for an LEI to be issued or renewed, but with the option of declining to provide this information for the reasons detailed in the ROC’s report.
The Global Legal Entity Identifier Foundation (GLEIF) has developed the organizational and technical standards required to collect data on direct and ultimate parents of legal entities in the Global LEI System.