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A Map to Payments Transformation: FSB Recognizes Unique Identifiers as a Building Block for Enhanced Cross-border Payments

Clare Rowley welcomes the FSB’s Roadmap on Enhancing Cross-border Payments, which commits to consultation with GLEIF and other stakeholders on a global Unique Identifier and outlines the FSB’s commitment to review options for increasing LEI adoption

Author: Clare Rowley

  • Date: 2021-02-18
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In an increasingly digitalized world, the G20 has its sights firmly set on enhancing cross-border payments. By making cross-border payment services faster, cheaper, more transparent and more inclusive, the expectation is that economic growth, international trade and financial inclusion will all prosper, generating benefits for citizens and economies globally. The economic implications of the current global pandemic only strengthen the case for this to happen sooner rather than later.

To support this international priority, the Financial Stability Board (FSB) published its Stage 3 roadmap on Enhancing Cross-border Payments in October. The document was developed in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other relevant international stakeholders. It builds on the FSB’s Stage 1 report, setting out the challenges and frictions in cross-border payments that contribute to them, and the CPMI’s Stage 2 report, describing the necessary elements of a response, in the form of a set of 19 building blocks.

In its publication, the FSB lists several key focus areas that require global coordination and action in order to overcome these challenges. These focus areas, which seek to enhance the existing payments ecosystem and also cover emerging payment infrastructures and arrangements, are mapped through building blocks to associated actions and indicative timelines, agreed upon by FSB member authorities, standard-setters and international organizations. This approach provides a high-level plan, which sets ambitious but achievable goals.

Payments are at the heart of digitalization which is why the European Commission has set out a Retail Payments Strategy as a part of Digital Finance Package. International payments represent a core pillar of this strategy and we are supportive of the G20’s roadmap, in particular with regard to global standards. Full consideration will be given to the LEI, as it is a strong and established tool which can be used for reducing the costs associated with cross border payments. - Ceu Pereira, Team Leader, Retail Payments at European Commission

Global Unique Identifiers: a building block for cross-border payments

Of particular relevance to GLEIF, is the identification of ‘Establishing Unique Identifiers with proxy registries ’ as a key building block in the FSB’s roadmap to enhanced cross-border payments. This building block is mapped to the following focus area: increasing data quality and straight-through processing by enhancing data and market practices.

Within the roadmap’s action-oriented framework, FSB and GLEIF are committed to work in consultation with the CPMI, International Monetary Fund, World Bank, International Organization for Standardization and other stakeholders, to: “explore the scope for, and obstacles to develop, a global Unique Identifier (UI) for cross border payments and potentially other financial transactions, that takes into account existing identifiers including the LEI for legal entities…. The review would also:

  • Consider mechanisms to match UIs with payment information, such as visa a proxy registry,
  • Take into account the work of relevant standard setting bodies, including the FATF [Financial Action Task Force], on technical, governance or policy issues,
  • And analyse how to map existing identifiers.”

This collaborative work effort is scheduled to run from October 2020 until December 2021 and GLEIF welcomes the opportunity to engage with it.
Additionally, as a further action mapped to the same ‘Establishing Unique Identifiers…’ building block, GLEIF will work in close coordination with the FSB, the Legal Entity Identifier Regulatory Oversight Committee (LEI-ROC) and national authorities to explore options for improving LEI adoption. This work effort will run from June 2021 to June 2022

From GLEIF’s perspective, it is extremely encouraging to see that the FSB’s roadmap to enhanced cross-border payments makes a crystal clear connection between legal entity identification and a well-functioning global payment ecosystem. The absence of a system which uniquely identifies counterparties in any type of transaction, whether cross-border or otherwise, fundamentally limits transparency, the security of payments and the ability to track fraud. The FSB’s efforts to define a standardized global entity identifier which will allow this identity verification to happen across international borders should only be celebrated. Such a move has the potential to increase global trading confidence, which will result in significant commercial and economic opportunities.

Can the LEI be leveraged?

Corporates need to be able to transparently identify counterparties when making and processing payments. This is challenging when dealing with legal entities in different jurisdictions. Airbus payment and KYC processes could be eased if transaction counterparties could easily be uniquely identified, alongside their ultimate beneficiary owners. LEI usage in cross-border payments would bring significant benefits to corporates globally. - Dr. Franz Kaiser, Head of Treasury Reporting & Middle Office, Finance FTR at Airbus

Another reassurance comes from the FSB’s commitment to consider the LEI in context of this initiative. The roadmap sets out clearly that there is exploratory work to do in assessing the role that the LEI might play in the identification of legal entities within the cross-border payments landscape. There is no doubt that there needs to be universal agreement on the Unique Identifer taken forward. And therein lies a key strength of the LEI; decisions on common standards for payments are often shaped by alignment among large and diverse groups of stakeholders – and the LEI is the legacy of such a global agreement. Given that the LEI was developed to create transparency in the derivatives market following the 2008 financial crisis, it seems a natural evolution of its purpose to play a critical role in delivering transparency across the global payments landscape. It is a very powerful proposition which poses an immediate solution for the global identification of legal entities. This is in sharp contrast to the question of how to address the need for a global unique identifier for individuals. In that case, an immediate solution is not quite so obvious.

As the FSB seeks to lay strong foundations for a future-proof global payment ecosystem, I’d like to reaffirm GLEIF’s commitment to playing a valuable and collaborative role in the transformation of the global payments landscape. We look forward to playing our part through engagement in the FSB consultations as we move forward and contribute purposefully to the enhancement of cross-border payments services.

In addition to their broader financial stability benefits, LEIs can help enhance the payments ecosystem. Such support could range from enhanced AML and sanction screening to more effective internal reconciliation of payments. Given its importance to payments and as a valuable tool in an increasingly data-driven economy, the Bank of England will introduce the LEI into ISO 20022 CHAPS payment messages. This will start in February 2023 on an ‘optional to send’ basis. From Spring 2024, the LEI will be mandatory to send for payments between two financial institutions. I hope that with time as LEI adoption increases we will be able to mandate to a broader set of payments. Achieving a greater critical mass will enable the greatest progress to be made. - Victoria Cleland, Executive Director for Banking, Payments and Innovation, Bank of England

Financial institutions across Europe have to speak the same technical language to process payments efficiently and safely. The EPC SEPA payment and payment-related schemes, therefore, rely on global open standards to ensure that all stakeholders exchange data which are commonly understood throughout Europe. Accordingly, the EPC is glad to see that the Global LEI System is growing and supporting businesses, and is ready to accommodate LEI in the new SEPA Request-to-Pay (SRTP) scheme as an option for identifying RTP service providers (SPs). - Javier Santamaria, Chair of European Payments Council and GLEIF Board Member

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About the author:

Clare Rowley is the Head of Business Operations at the Global Legal Entity Identifier Foundation (GLEIF). Prior to working with GLEIF, Ms. Rowley worked at the United States Federal Deposit Insurance Corporation where she led technology initiatives improving bank resolution programs and contributed to research on subprime mortgages. Ms. Rowley is a CFA® charter holder and holds a MS in Predictive Analytics from Northwestern University.

Tags for this article:
Global Legal Entity Identifier Foundation (GLEIF), Governance, LEI Business Case, Open Data, Standards, Regulatory Oversight Committee (ROC)