09.09.2011
By Terry Flanagan

LEI Schemes Put Forward

Joint government-industry effort is required to define a system of international legal entity identifiers.

Efforts to define common data formats for OTC derivatives are gathering momentum on a global level, with movement on both the regulatory and private sector fronts.

A joint report issued last month by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) re3commends 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.

“LEI is an example of regulators taking the lead in areas that require global harmonization,” Tony Freeman – executive director of industry relations, EMEA at Omgeo, told Markets Media. “It’s a realization that the industry has data issues that need to be resolved proactively.”

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).

UCIs would be mandated in all swap data recordkeeping and reporting, and require reporting all corporate affiliations into a confidential, nonpublic corporate affiliations reference database. Data would be available only to the CFTC and other financial regulators.

The SEC, in its proposed rule regarding reporting and dissemination of security-base swap information, proposes a Unique Identifier Code (UIC) assigned to each product or person (or branch or trading desk) of a financial institution.

The SEC proposes that UICCs be assigned by an internationally-recognized standards-setting body or, if no such body exists, that registered swap data repositories (SDRs) assign UICs using their own methodology.

The CPSS/IOSCO report notes that establishment of a universal LEI would require an international approach to implementation, and that further international consultation will be beneficial.

On July 18, the Financial Stability Board noted the progress of financial regulators and industry to establish a single global system for uniquely identifying parties to a financial transaction, and agreed to arrange a workshop in the fall to discuss the issues that need to be addressed and how to coordinate work going forward.

FinReg established the Office of Financial Research (OFR), a division of the U.S. Treasury that’s charged with collecting data to support the Financial Stability Oversight Council.

The OFR is standardizing the manner in which parties to financial contracts are identified in the data it collects on behalf of the FSOC, including the Legal Entity Identifier (LEI) and institutional arrangements for issuing and maintaining identifiers and associated reference data.

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