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Data Quality and Risk Management: The Importance of Timely Renewal of Legal Entity Identifiers
The re-validation of Legal Entity Identifier (LEI) reference data is essential to ensuring the accuracy of the global LEI data pool and trust in the Global LEI System
Author: Stephan Wolf
Estimated Reading Time: 7 minutes
The Global Legal Entity Identifier Foundation (GLEIF) publishes the updated GLEIF Concatenated File daily. This file contains the content of the individual files, published by the LEI issuing organizations, which list all LEIs issued to legal entities and related LEI reference data. The data provides the information on a legal entity identifiable with the LEI. The GLEIF Concatenated File is available for download free of charge on the GLEIF website.
A key feature that distinguishes the LEI from other identifiers is the obligation of legal entities that have obtained an LEI to renew it regularly. Renewal means that the LEI reference data related to the registering entity is re-validated against a third party source. Renewal therefore is essential to ensuring high data quality with regard to the global LEI population and, consequently, trust in the Global LEI System.
Meeting the objectives defined by the Financial Stability Board and the Group of Twenty with the launch of the LEI initiative is contingent upon availability of accurate and up to date LEI data. Implementation of the LEI increases the ability of authorities in any jurisdiction to evaluate risks, conduct market surveillance and take corrective steps. Use of an LEI also generates tangible benefits for businesses including reduced counterparty risks and increased operational efficiencies.
This blog outlines the obligations with regard to renewal that must be observed by LEI issuing organizations and legal entities that have obtained an LEI as determined by the LEI Regulatory Oversight Committee (ROC). The LEI ROC is a group of over 60 public authorities from more than 40 countries established in January 2013 to coordinate and oversee a worldwide framework of legal entity identification, the Global LEI System.
The LEI ROC has specified that an LEI issuing organization must re-validate the reference data associated with a previously issued LEI under its administration “on a regular basis and no longer than one year from the previous validation check”. This re-validation check “must include verifying with the entity that the relevant information is accurate”.
Sources cited in this blog are included in the ‘related links’ below.
Recap: the process of obtaining an LEI
The LEI is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization. It connects to key reference information that enables clear and unique identification of legal entities participating in global financial markets and / or in financial transactions.
LEIs are issued by authorized organizations referred to as Local Operating Units. (The list of organizations currently authorized to issue LEIs is included in the ‘related links’ below.) The Local Operating Units supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI. A legal entity is not limited to using an LEI issuer in its own country; instead it can use the registration services of any Local Operating Unit that is qualified to validate LEI registrations within the legal entity’s jurisdiction.
Recap: the information provided with the LEI reference data
The process of maintaining LEI data quality starts with the registering entity. Through self-registration, the registering entity must provide accurate LEI reference data. The LEI issuing organization must then validate the LEI reference data with the local authoritative source – a national Business Register, for example – and issue an LEI compliant with the LEI standard.
Once a legal entity has obtained an LEI, it will be published together with the related LEI reference data by the Local Operating Unit that has issued the LEI. As mentioned above, this information is also available with the GLEIF Concatenated File released daily. This means the full data on the entire LEI population is publicly available for barrier-free use by any interested party at all times.
The ISO 17442 standard defines a set of attributes or LEI reference data that are the most essential elements of identification. It specifies the minimum reference data, which must be supplied for each LEI:
The official name of the legal entity as recorded in the official registers.
The registered address of that legal entity.
The country of formation.
The codes for the representation of names of countries and their subdivisions.
The date of the first LEI assignment; the date of last update of the LEI information; and the date of expiry, if applicable.
Additional information may be registered as agreed between the legal entity and its LEI issuing organization.
The ‘Common Data File Format’ defines how LEI issuing organizations report their LEI and LEI reference data. It was developed by the LEI Regulatory Oversight Committee and mandated for LEI issuing organizations. The LEI issuing organizations adopted the ‘Common Data File Format’ in August 2014. The data made available with the daily GLEIF Concatenated File is based on this format.
Recap: the obligation to regularly renew the LEI or what is a ‘lapsed’ LEI
The LEI renewal process contributes to maintaining a high level of data quality, because it requires re-validation of the LEI reference data recorded for a legal entity against third party sources by the LEI issuer.
In line with the Common Data File Format, the registration section of an LEI data record includes the data element ‘Next Renewal Date’, which states the date by which the LEI registration should be renewed and re-certified by the legal entity. The renewal date – as well as the fee paid by the legal entity to the LEI issuer for performing the re-validation of LEI reference data – is agreed between the legal entity and its LEI issuer. As mentioned above, the LEI Regulatory Oversight Committee however mandates that renewals take place not later than one year after the previous verification of the data.
Annual Renewal Process:
The LEI data record also indicates the status of any given LEI. If a legal entity fails to renew and re-certify its LEI registration by the date stated with its LEI reference data and, subsequently, fails to perform the renewal within a grace period determined by its LEI issuer, then the registration status of this LEI will be set to ‘lapsed’.
It must be stressed however, that a lapsed LEI remains valid. The status ‘lapsed’ in the relevant data field of an organization’s LEI reference data simply indicates that it is behind schedule as regards renewal, i.e. re-validation of its information against third party sources.
The status ‘lapsed’ therefore, also does not necessarily indicate that the information recorded for the legal entity is outdated. In fact, some legal entities might – erroneously – assume that they would be allowed to skip a committed renewal date, because their information has not changed since their information was last verified. It is important however, to remind registered entities that based on established policy there are no exceptions to the obligation of renewing the LEI by the target date.
How to further increase the rate of timely LEI renewal
As of 29 September 2015, i.e. the publication date of this blog, 395,466 LEIs have been issued globally of which 86,150 are lapsed LEIs. In other words, currently some 21 percent of the LEI population is behind schedule with regard to the renewal of their LEI reference data.
It should be noted that in 2014 business intelligence indicated a 40 percent rate of lapsed LEIs. Due to continued efforts by regulators in many jurisdictions and GLEIF’s partnering LEI issuers across the markets, the rate of lapsed LEIs has decreased by 50 percent in 2015. Significant progress has been achieved in educating legal entities to perform the mandatory renewal on time.
This said, joint efforts will continue to further increase the rate of timely LEI renewal.
In the European Union, for example, the European Securities and Markets Authority has specified when it is not permissible to use lapsed LEIs in the area of trade reporting. In addition, regulators indicated that they will increasingly verify if LEIs reported have been renewed. Consequently, organizations subject to relevant regulations are no longer able to trade if their LEI is lapsed.
GLEIF, together with its LEI issuing partners, will continue educating registered entities to comply with their obligation to regularly renew their LEI by agreed target dates. To that end, LEI issuers are committed to making the renewal process as easy as possible for registered entities.
Further increasing the rate of timely LEI renewal remains a work in progress. The GLEIF Blog will regularly comment on related developments.
Stephan Wolf is the CEO of the Global Legal Entity Identifier Foundation (GLEIF). Since January 2017, Mr. Wolf is Co-convener of the International Organization for Standardization Technical Committee 68 FinTech Technical Advisory Group (ISO TC 68 FinTech TAG). In January 2017, Mr. Wolf was named one of the Top 100 Leaders in Identity by One World Identity. He has extensive experience in establishing data operations and global implementation strategy. He has led the advancement of key business and product development strategies throughout his career. Mr. Wolf co-founded IS Innovative Software GmbH in 1989 and served first as its managing director. He was later named spokesman of the executive board of its successor IS.Teledata AG. This company ultimately became part of Interactive Data Corporation where Mr. Wolf held the role of CTO.