10.21.2011
By Terry Flanagan

G-20 Backs Legal Entity Identifiers

Finance ministers support system for tagging entities and instruments.

Efforts to create global standards for identifying financial entities and instruments have received the backing of the G-20.

In its communiqué from its meeting in Paris this month, the finance ministers underscored their support for a global legal entity identifier system which uniquely identifies parties to financial transactions with an appropriate governance structure.

“Support from the G20 group [of Finance Ministers and Central Bankers] for a global LEI system is a promising development and one which, we hope, will encourage momentum towards the adoption of the LEI standard,” Bill Meenaghan, global product manager for ALERT at Omgeo, told Markets Media.

“The backing of the LEI initiative by the G20 demonstrates a growing level of awareness of the importance of reference data as a tool to measure and reduce risk,” he said. “With the second phase of the ISO approval due to take place in December 2011, the G20’s support of the initiative is well-timed.”

A joint report issued by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) recommends the creation of a system of Legal Entity Identifiers (LEIs), continued international consultation regarding implementation of LEIs, and international work to develop an international product classification system for OTC derivatives.

“A global LEI, as advocated by the G20 group, along with a regulatory mandate for firms to implement the standard is the only way the universal adoption of the standard can be achieved,” Meenaghan said. “Similar projects have historically not achieved their objectives because of differing levels of adoption and market participants will not be able to get the full benefit of LEIs, including reduced risk and increased transparency, unless there is global adoption.”

In the United States, the Office of Financial Research has issued a policy statement regarding its preference to adopt through rulemaking a universal standard for identifying parties to financial contracts that is established and implemented by private industry and other relevant stakeholders.

At the private sector level, a coalition of trade associations, such as Sifma and the Association for Financial Markets in Europe (AFME) has been working to develop consensus on the requirements and standards for a uniform and global LEI siltation.

The trade associations recommended that a soon-to-be-released international standard (ISO 17442) be used as the new, authoritative LEI standard.

They also recommend that Depository Trust & Clearing Corp. (DTCC) and Swift, along with DTCC’s subsidiary Avox Ltd., operate the core LEI utility as the central point for data collection, maintenance, and LEI assignment.

DTCC will collect requests for new LEIs to be created, validate the information provided using Avox’s capabilities, maintain and store the reference data associated with each LEI, and maintain the public distribution of the LEI database.

In addition, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) have proposed analogous proposals for a universal, global reporting standard.

The CFTC proposes a universal, international standard consisting of three unique identifiers to facilitate data aggregation by regulators across counterparties, asset classes and transactions: a Unique Counterparty Identifier (UCI), a Unique Swap Identifier (USI) and a Unique Product Identifier (UPI).

Related articles

  1. Data extraction and integration is the second stage of a digitization process.

  2. Shedding Light on 'Dark' Data

    Financial Instrument Global Identifier enables consistency through trade lifecycle and across institutions.

  3. Spending on ESG data has an annual growth rate of 20%.

  4. Increased electronification has created useable and accessible real-time and historic trade data.

  5. Trade Reporting In Focus

    The GIPS standards, created by CFA Institute, are for calculating and presenting investment performance.