#2 in the LEI Lightbulb Blog Series - Spotlight on China: A Nation Advancing LEI Usage Through Policy and Innovation
China is promoting nationwide adoption of the LEI through a regulatory roadmap. The country is also paving the way for LEI usage in digital identity products. Its strong commitment to roll out the LEI will support financial ecosystems, promote international trade and develop digital transparency.
Author: Xue Tan
Significant advances are taking place right now in China relative to LEI adoption. Regulatory authorities within the region are proactively driving LEI usage and have set ambitious plans for substantial near-term increases in LEI volume.
For those who missed it, the People’s Bank of China (PBOC) published an LEI implementation roadmap at the end of 2020, which looks ahead to 2022. This roadmap is part of the ‘One Belt One Road’ initiative, which is described in the following way on Wikipedia: ‘[…] incorporated into the Constitution of China in 2017. The Chinese government calls the initiative "a bid to enhance regional connectivity and embrace a brighter future."’ The roadmap unveils national plans to increase LEI issuance by a minimum of 170% between the end of 2020 (there were 37,000 active LEIs) and the end of 2022 (the target is a minimum LEI volume of 100,000).
In a separate but complementary development, just this month GLEIF has welcomed the news that the Chinese Financial Certification Authority (CFCA) has launched the first commercial demo of LEIs embedded within digital certificates. CFCA has simultaneously become the first Certification Authority to assume a Validation Agent role within the Global LEI System. This innovation from CFCA shows a further commitment from the Chinese market, this time to facilitating and promoting LEI issuance in digital certificates. It is hoped that CFCA’s early mover status on this front will act as a catalyst for other similar demos to emerge.
The combined sum of these two initiatives is significant. It shows an advanced level of proactivity from regulatory authorities within the region, which is driving LEI issuance to support financial services and banking ecosystems, simplify international trade and enhance digital identity across the region.
Understandably, GLEIF advocates these steps being taken to advance LEI adoption across China and applauds the foresight and proactivity of regulators. A commitment to boosting LEI issuance across such a vast region, will not only deliver benefits to Chinese market participants, but has the potential to motivate regulators across other countries and regions to follow suit. GLEIF certainly hopes that this is the case.
A more detailed summary of each initiative is given below.
China’s LEI Implementation Roadmap: 2020-2022
In Q4 2020, four financial regulators in China released a report detailing a roadmap for LEI implementation. The four organizations involved were: PBOC, the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE).
The report, which is published in Chinese on the PBOC website, outlines the general objective of the roadmap and details key LEI implementation milestones over the next two years.
As stated in a Regulation Asia article, the intention of wide LEI implementation in China is to help the country connect with the international market, support China’s bid to open up its financial sector, and facilitate cross-border trade and financial transactions.
In line with a translation from the report on the PBOC website, GLEIF understands that the general objective of the roadmap is to establish a comprehensive LEI usage policy system across China’s financial system in line with international standards by the end of 2022. It envisions that the LEI will become an assisting tool for financial management authorities to maintain financial stability and implement financial supervision. It will become an important means for financial infrastructure, financial industry associations and financial institutions to carry out customer identification of legal persons involved in cross-border transactions. It will also become a corporate passport.
This is in line with the PBOC’s role as a member of the Regulatory Oversight Committee (ROC). The ROC aims to promote the broad public interests to improve the quality of data used in financial data reporting, improving the ability to monitor financial risk, and lowering regulatory reporting costs through the harmonization of these standards across jurisdictions.
A number of phase objectives are then outlined for Chinese authorities:
By end of 2020: total LEI volume in China mainland to reach 30,000, covering all financial institutions, member institutions of financial infrastructure and industry associations, and listed companies in China. Proposed LEI application rules in scenarios such as RMB cross-border payments, digital RMB cross-border business, qualified foreign institutional investor (QFII) and RMB qualified foreign institutional investor (RQFII) access, derivatives trading, securities trading, and listed company supervision. Establish a mechanism for mapping and updating LEI with the codes of financial institutions, unified social credit codes, and codes of information systems related to major financial infrastructure.
By end of 2021: total LEI volume in China mainland reaches 50,000, with a focus on improving coverage among importers and exporters, trading enterprises, and non-financial enterprises involved in cross-border transactions. Proposed LEI application rules in areas such as the financial market transaction reporting system, credit rating, and application of special institutional codes by overseas institutions. Launch and operate the cross-border legal person information service and digital authentication platform to provide value-added LEI-based data services to financial management departments, financial infrastructure, financial industry associations and financial institutions.
By end of 2022: total LEI volume in China mainland reaches 100,000. Continued improvements in coverage among non-financial enterprises involved in cross-border transactions. Use LEI in scenarios such as digital identification of cross-border legal persons. Establish a mechanism for commercially sustainable operation of LEI.
CFCA Paves the Way for Increased LEI Usage in Mass Market Digital Identity Products
CFCA has launched the first commercial demonstration of LEIs embedded within digital certificates. It has also become the first Certification Authority to act as a Validation Agent in the Global LEI System, streamlining LEI issuance with digital ID product and service provision.
These developments by CFCA follow the recent launch of the GLEIF CA Stakeholder Group, created as a platform for GLEIF to collaborate with CAs and Trust Service Providers (TSPs) on the coordination and promotion of a global approach to LEI usage across digital identity products. CFCA’s advances are significant because they are the earliest reported successes aligned to the direction of this industry initiative, which is aimed at achieving a critical mass of LEIs embedded within digital certificates.
Stephan Wolf, CEO of GLEIF comments: “This progress by CFCA on both fronts is very welcome as it moves us one step closer to broad LEI usage in digital certificates globally. Realizing the goal of universal LEI usage in digital identity products will be an important step in enhancing trust and creating innovation opportunities across private sector digital identity management applications. Digital certificates linked by an LEI to verified, regularly updated and freely available entity reference data held within the Global LEI System are easier to manage, aggregate and maintain. The result will be significant efficiencies and far less complexity for certificate owners and the provision of greater transparency for all users of the internet and participants within digital exchanges.”
For more details, please read the corresponding press release here.
The ‘LEI Lightbulb Blog Series’ from GLEIF aims to shine a light on the breadth of acceptance and advocacy for the LEI across the public and private sectors, geographies and use cases by highlighting which industry leaders, authorities and organizations are supportive of the LEI and for what purpose. By demonstrating how success derived from strong regulatory roots is giving rise to a ground swell of champions for further LEI regulation and voluntary LEI adoption across new and emerging applications, GLEIF hopes to educate on both the current and future potential value that ‘one global identity’ can deliver for businesses, regardless of sector, world-wide.
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Xue Tan is the Business Relations Manager Team Lead at the Global Legal Entity Identifier Foundation (GLEIF). Prior to working with GLEIF, Ms. Tan worked at the Australia and New Zealand Bank (ANZ) Beijing Office in China, mainly in charge of Cash Management and KYC/AML processes. Tan holds an MBA from Mannheim Business School.