Think Beyond Compliance: The Business Case for Obtaining an LEI
How to make smarter, less costly and more reliable decisions about who to do business with
Author: Stephan Wolf
Estimated Reading Time: 6 minutes
To date, discussion related to the rollout of the Legal Entity Identifier (LEI) has largely focused on initiatives relevant to legal entity identification in regulatory reporting and supervision. This reflects the immediate objective pursued with the introduction of the LEI standard following the financial crisis: to increase the authorities’ ability to evaluate systemic and emerging risk, identify trends and take corrective steps.
As demonstrated with the current LEI population, these efforts have generated excellent results. At the end of June 2017, some 520,000 LEIs were assigned to legal entities active, primarily, in the derivatives markets. Most of these entities are based in the US and the European Union (EU) where regulations require the use of LEIs to uniquely identify counterparties to transactions in regulatory reporting. These regulations include Dodd-Frank, the European Market Infrastructure Regulation and the forthcoming revised EU Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). (For detailed information on the regulatory use of the LEI, refer to the ‘related links’ below.)
Despite this success to date, we are convinced that the Global LEI System has the potential to also benefit the wider business community. Organizations across the globe not only need to keep on the right side of the regulators, but also need to be able to make smarter, less costly and more reliable decisions about who to do business with.
GLEIF video: Connect the corporate dots
Get an LEI and make it work for you: The private sector opportunity
Businesses across the globe are currently grappling with how to develop and implement a common entity identification system that could serve as a linchpin to identify financial market participants and connect data. Entity identification can be a time-consuming, costly and complex task; most organizations do not maintain a single database which collates up to date reference data to existing or prospective clients, business partners and counterparties. Gathering and maintaining related data requires replicating efforts across the market, tying up resources that could be spent more productively elsewhere.
Yet, simply gathering large volumes of data will not suffice. As stated by a Financial Times article in July 2016 what is needed is a way “to track the connections that exist between companies scattered across different national jurisdictions”. To date, related information is very difficult to trace, particularly regarding cross-border corporate structures. After all, there are thousands upon thousands of companies listed on global stock exchanges and millions of others listed on national registries. The latter group presents more of a problem since registries are extremely disjointed.
The trouble is that up until now, legal entity reference data has been proprietary, siloed and non-standardized.
So, what’s the solution? The good news is, there is one and progress towards unlocking it is already well under-way. It exists in the form of the Global LEI Index (see ‘related links’ below). As a result of services offered by the Global Legal Entity Identifier Foundation (GLEIF), this is a free online source that provides open, standardized and high quality legal entity reference data with the potential to capture any entity engaging in financial transactions globally. The Global LEI Index brings efficiency, transparency and trust to legal entity identification.
The business card information available with the LEI reference data, e.g. the official name of a legal entity and its registered address, provides the answer to the question of ‘who is who’. Going forward, the LEI data pool will be gradually enhanced to include the information that answers the question of ‘who owns whom’. This data allows the identification of the direct and ultimate parents of a legal entity and, vice versa, in order that the entities owned by individual companies can be researched. By publishing data clarifying who owns whom, GLEIF will provide a unique and free data source that allows corporate dots to be connected globally based on open, standardized and high quality LEI data.
Taking advantage of the Global LEI Index will empower organizations across the board to cut costs, simplify and accelerate operations and gain deeper insight into the global market place. If your counterparts – corporate customers, providers and other business partners – could all be uniquely, easily and speedily identified with the LEI, that would provide you with cost benefits and new business opportunities. Accessing and using the LEI data pool could support a multitude of applications in, for example, risk management, compliance and client relationship management.
The benefits generated for the wider business community by the Global LEI Index grow in line with the rate of LEI adoption. So, our message to businesses around the globe is this: Get an LEI and make it work for you.
We can’t offer a complete solution to the issue of transparency just yet but as the use of the LEI becomes more widespread, we are consistently moving closer. To accelerate progress, we must foster greater coherence and collaboration to promote the increased adoption and implementation of shared open data principles, standards and good practice around the world.
GLEIF will continue to focus, in cooperation with our partners in the Global LEI System, on further optimizing the quality, reliability and usability of LEI data, empowering market participants to benefit from the wealth of information available with the LEI population.
The LEI is the linchpin that connects the dots across the universe of entity identification in the digital age. We’re calling on private and public sector organizations across the globe to consider the benefits of having an LEI and take full advantage of what’s on offer.
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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.