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Legal Entity Identifier News: The January 2016 Update

Global Legal Entity Identifier Foundation provides an overview of latest global developments relevant to Legal Entity Identifier adoption

Author: Stephan Wolf

  • Date: 2016-01-14
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“2015 has been a year of genuine progress for the Legal Entity Identifier (LEI) project,” commented RegTech in December 2015. More than 400,000 LEIs have been issued to date. The Global Legal Entity Identifier Foundation (GLEIF) is confident that in 2016 we will continue to witness widespread LEI adoption.

To make it easy for stakeholders to follow global developments relevant to LEI rollout, GLEIF provides related updates via the GLEIF Blog. This blog post summarizes LEI news and market debate tracked since November 2015.

Sources cited in this blog are included in the ‘related links’ below.

Financial Stability Board released report to the Group of 20 on actions taken to assess and address the decline in correspondent banking

On 6 November 2015, the Financial Stability Board (FSB) published its report to the Group of 20 (G20) on actions taken to assess and address the decline in correspondent banking. As outlined by Mondovisione Worldwide Exchange Intelligence, the report “provides an update on work by the FSB in partnership with other organizations to examine the extent and causes of banks’ withdrawal from correspondent banking and the implications for affected jurisdictions, including risks of financial exclusion.”

“The main drivers given by the large banks for their reduction in correspondent banking were concerns about money laundering and terrorism financing risks in the jurisdictions of their counterpart banks. Authorities and local banks predominantly mentioned overall risk appetite and lower profitability as causes, which may in part be affected by money laundering risk concerns and higher costs from extra due diligence.”

The FSB will continue to work in partnership with the Basel Committee for Banking Supervision (BCBS), Committee on Payments and Market Infrastructures (CPMI), Financial Action Task Force (FATF), International Monetary Fund (IMF), LEI Regulatory Oversight Committee (LEI ROC) and World Bank to address this issue through a four-point action plan. It aims to further examine the dimensions and implications of the issue, clarify regulatory expectations, build domestic capacity within jurisdictions that are home to affected respondent banks, and strengthen tools for due diligence by correspondent banks.

The latter “includes correspondent bank information sharing, through Know Your Customer facilities and broader use of the global LEI.” The CPMI and the LEI ROC have made proposals in these areas. The LEI ROC is a group of over 80 public authorities, from 50 countries, established in January 2013 to coordinate and oversee the Global LEI System.

By February 2016 the FSB, in cooperation with other relevant stakeholders, will develop a plan for promoting the use of the LEI by all banks involved in correspondent banking.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions released a consultative report on harmonization of the Unique Product Identifier

On 17 December 2015 the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a consultative report for public comment entitled ‘Harmonization of the Unique Product Identifier (UPI)’.

As stated in a related press release, the report “makes proposals for the harmonized global UPI, whose purpose is to uniquely identify over-the-counter (OTC) derivatives products that authorities require to be reported to trade repositories (TRs). The UPI would consist of a product classification system and associated code. The focus of this report is the product classification system.”

“The report responds to a G20 agreement in 2009 that all OTC derivatives contracts be reported to TRs, as part of the G20 commitment to reform OTC derivatives markets with the aim of improving transparency, mitigating systemic risk and preventing market abuse. Aggregation of the data reported across TRs will help ensure that authorities can obtain a comprehensive view of the OTC derivatives market and its activity.”

The CPMI and IOSCO and the FSB have “in recent years published reports that laid the foundation for the harmonization work on key OTC derivatives data elements for meaningful aggregation on a global basis.”

The CPMI and IOSCO consultative report on the harmonization of the UPI points out that in September 2014, the FSB published “a study of the feasibility of options for a mechanism to produce and share global aggregated data (Aggregation Feasibility Study)”. One of the study’s conclusions was that “it is critical for any aggregation option that the work on standardization and harmonization of important data elements be completed, including in particular through the global introduction of the Legal Entity Identifier (LEI), and the creation of a Unique Transaction Identifier (UTI) and Unique Product Identifier (UPI).”

Following the 2014 feasibility study, the FSB asked the CPMI and IOSCO to develop global guidance on the harmonization of data elements reported to TRs and important for the aggregation of data by authorities, including the UTI and UPI.

The consultative report on the harmonization of UPI is part of the Harmonization Group's response to that mandate. The report seeks general and specific comments and suggestions from respondents by 24 February 2016.

Responses to the CPMI and IOSCO’s consultative reports on, respectively, the harmonization of the UTI and key OTC derivatives data elements (first batch) published

The CPMI and IOSCO both issued earlier consultative reports on the ‘Harmonization of the Unique Transaction Identifier’ (August 2015) and the ‘Harmonization of key OTC derivatives data elements (other than UTI and UPI) – first batch’ (September 2015). Comments received on both papers have been published, respectively, on the Bank for International Settlements’ website (see ‘related links’ below).

There are plans to issue a separate consultative report on the UPI code, as well as consultative reports on further batches of key data elements (other than UTI and UPI), in the coming months.

Switzerland to contribute to global identification system for financial market participants

On 4 December 2015 the Federal Council, the Federal Department of Finance and the Federal Statistical Office of Switzerland announced that the country will participate in the Global LEI System: “The use of a uniform global legal entity identifier for financial market participants should improve the quality of financial data and facilitate the assessment of systemic risks. In Switzerland, this identifier will be used for the first time for reporting duties in derivatives trading after the Financial Market Infrastructure Act has entered into force. Furthermore, the basis is to be prepared in order for these identifiers to be issued by the Federal Statistical Office in the future.”

Up to now Switzerland has been represented in the LEI ROC with two observer seats. By virtue of the decision taken on 4 December 2015, “the Federal Council is authorizing the Federal Department of Finance (FDF) to become a full member of the LEI ROC and thus to participate actively in the further development of the LEI standard.” The Swiss National Bank (SNB) also intends to become a member of the oversight committee.

Parallel to the FDF’s membership in the LEI ROC, “the Federal Department of Home Affairs will prepare the basis for LEI numbers to be issued in Switzerland by the Federal Statistical Office in the future”.

US National Futures Association’s swap dealer/major swap participant registry now includes LEI

As reported by Lexology, on 8 December 2015 the US National Futures Association (NFA) “announced that it has added LEI information to its swap dealer/major swap participant registry, the data file on its website that contains a consolidated listing of information for use by those market participants and other entities who play a role in processing swap transactions.” The original version of the registry without LEI information will be discontinued from 1 July 2016.

The NFA is the “self-regulatory organization for the US derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives (swaps). NFA has developed and enforced rules, provided programs and offered services that safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities and has done so for more than 30 years.” Membership of the NFA “is mandatory, assuring that everyone conducting business with the public on US futures exchanges and in the retail forex marketplace must adhere to the same high standards of professional conduct. NFA membership is also mandatory for swap dealers and major swap participants. NFA's membership currently numbers approximately 4,100 firms and 57,000 associates.” (NFA website).

Rule proposed by US Securities and Exchange Commission on how to make available security-based swap data

The Federal Register – The Daily Journal of the United States Government reports that on 23 December 2015, the US Securities and Exchange Commission (SEC) published for comment a proposed amendment to specify the form and manner with which security-based swap data repositories (SDRs) will be required to make security-based swap (SBS) data available to the SEC under Exchange Act Rule 13n-4(b)(5). The SEC is proposing “to require SDRs to make these data available according to schemas that will be published on the SEC’s website and that will reference the international industry standards Financial products Markup Language (FpML) and Financial Information eXchange Markup Language (FIXML).”

Several applicable rules “require reporting of the identity of each counterparty to a security-based swap as well as certain other persons who are affiliated with the counterparties or are otherwise involved in the transaction, but who are not counterparties of that specific transaction.” Because the SEC has recognized the Global LEI System “as an Internationally Recognized Standard Setting System (IRSS) that assigns unique identification codes (UICs) to persons, these types of persons are required to obtain an LEI and registered SDRs are required to use these LEIs to identify these persons. Because the requirement to obtain an LEI does not apply to all persons enumerated in Rules 901(d)(1), 901(d)(2), 901(d)(9), 906(a), and 906(b), the schemas would accommodate identifiers that are not LEIs. Similarly, the schemas would accommodate LEI and non-LEI identifiers for execution agent IDs and broker IDs, since such persons might not have an LEI. Further, because no IRSS meeting the requirements of 903(a) has assigned or developed a methodology for assigning branch IDs, trader IDs, and trading desk IDs, the schemas would accommodate the identifiers or methodologies developed by the registered SDRs.”

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About the author:

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.

Tags for this article:
Unique Product Identifier (UPI), Unique Transaction Identifier (UTI), Correspondent Banking, Over-the-Counter (OTC) Derivatives, Policy Requirements, Standards, Regulation, Compliance, LEI News