The Global Legal Entity Identifier Foundation provides an overview of the latest global developments relevant to Legal Entity Identifier adoption.  BIIA is providing its members with an unabridged version of the latest update:  Author of the document is Stephan Wolf

To make it easy for stakeholders to follow global developments relevant to Legal Entity Identifier (LEI) rollout, we provide related updates via the GLEIF Blog. This blog post summarizes LEI news tracked since May 2017.

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

Corporates: Obtaining an LEI should be “more than a MiFID box-checking exercise”

In July 2017 Treasury Today highlighted that the impending revised European Union (EU) Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) legislation will force widespread adoption of the LEI. Yet in its article ‘LEI: More Than a Number’, Mark Davies, global head – data services for Thomson Reuters Risk Managed Services, is keen to stress that “obtaining an LEI should be more than a MiFID box-checking exercise.”

The article reminds corporates that from 3 January 2018, they need to be in possession of an LEI to continue entering into derivatives contracts with banks. “To join the over half a million companies and legal entities issued with LEIs, corporates as well as all parties to in-scope transactions need to contact an LEI Local Operating Unit (LOU) – who can be found on the Global Legal Entity Identifier Foundation (GLEIF) website – to obtain a code, which will be issued in line with an ISO standard.”

Yet while the article acknowledges that the most pressing reason to obtain an LEI for many corporations “will be to ensure they can continue to transact seamlessly using derivatives once the MiFID II regulations come into force”, it cites Davies’ assertion that encouraging all businesses to obtain an LEI, be it through regulatory enforcement or best-practice education, “can have many knock-on benefits for corporates.” Additional benefits include:

  • Greater visibility and transparency over who you are doing business with and how companies are connected, if parties in a corporate’s supply chain have LEIs.
  • With SWIFT working to link payments with LEIs, the payments space will benefit from “increased transparency [….] [and] greater straight through processing of payments. It could also potentially act as another safeguard against internal payment fraud if the BIC code is changed and […] does not correspond with the LEI.”

Davies recognizes that “these are only a few of the benefits that can be achieved from having the ability to unambiguously identify the parties involved in financial transactions.”

GLEIF agrees that MiFID II / MiFIR presents an opportunity for businesses to embrace the wider benefits of LEI. Along with the improvements in transparency, risk management and payments processing identified above, widespread LEI adoption can enhance data quality by improving data integration and data management. This, in turn, can drive the creation of new applications and new business models.

In June 2017, FEI Daily highlighted the huge problem facing every industry today: “The massive democratization of data, its use and the power it has provided the consumer.” In a subsequent discussion about transformational technologies that offer huge promise to the fintech and banking sectors, where the agility of many established players is hampered by legacy issues, Simon Moss, managing director in the Financial Services Advisory practice at Grant Thornton, recognizes the important role that LEIs will play. Moss acknowledges that “Blockchain can connect in a common identifier the various representations of a supply chain or person.” He continues that “the best place to start is looking for a single representation of the customer [….] LEI is an interesting starting point. How do we do a single identifier so that I don’t have to homogenize and go through a huge data integration project totalling in the hundreds of millions of dollars, just to understand the relationship [between different representations of the same customer]. Add to this biometric information […] and we begin to see some really interesting business models.”

Financial IT reported in June 2017 that, in the face of potential regulation roll-backs as a result of Brexit, there is widespread recognition that a commitment to regulatory compliance, such as that mandated by MiFID II, can deliver “operational benefits associated with better data management […]. The focus on data modelling and data scope, combined with the prescribed adoption of standards – such as LEI for counterparties […] – provide long term benefits. Once the initial compliance requirement has been met, the ability to leverage this standards-based approach to data […] will provide organisations with an opportunity to address the data management cost by eradicating much of the expensive data duplication currently in place, whilst also looking for internal efficiencies.”

GLEIF encourages corporates to view the MiFID II legislation deadline as an opportunity to utilize LEIs beyond compliance, to review entity management processes and improve data quality and management. The Global LEI Index, available on the GLEIF website, is the only global online source that provides open, standardized and high quality legal entity reference data. Establishing the Global LEI Index as the primary source providing reference data identifying corporate, mid-sized and even small enterprises active in any market segment could create additional efficiency gains for the entire business community.

Canada: Proposed provisions respecting client identifiers

In June 2017, Markets Media reported that The Investment Industry Regulatory Organization of Canada (IIROC) has put forward a proposal requiring “LEIs for orders so that the [self-regulatory organization] SRO (and other regional regulators) can better understand market structure and track participant behavior.” Within the proposal, which has a six-month comment period, the IIROC states that the goal of including LEIs, is to enhance market integrity and investor protection.

Doug Clark, head of market structure research at ITG Canada, told Traders Magazine that the idea of an audit trail isn’t new despite the move towards LEIs: “IIROC has had something close to Consolidated Audit Trail (CAT) data, directly from the exchanges, for almost a decade, for secondary equity market trading. They have used this for market surveillance and academic-style studies of market quality. Recently, they have proposed adding LEI’s to orders.”

The IIROC has also stated that it would like to see the development of back office systems to accommodate LEIs, as well as systems development to include client identifiers on all order activity on marketplaces and all reportable debt transactions.

European Central Bank: Synergies between banking union and capital markets union; LEI will increase transparency in capital and banking markets

In a keynote speech delivered by Vítor Constâncio, vice-president of the European Central Bank (ECB), at the joint conference of the European Commission and European Central Bank on European Financial Integration in Brussels on 19 May 2017, he acknowledged the value that LEIs will deliver in respect of the integration, transparency and efficiency of capital and banking markets.

“Banking union and capital markets union are undoubtedly the two central policy initiatives to catalyse financial integration in the EU. To reap the synergies between banking and capital markets union, progress in supporting legislative domains is necessary […] the use of […] LEI will increase transparency in capital and banking markets, foster their integration and enhance efficiency and consumer protection.”

Constâncio said: “The mandatory requirement to use the LEI should be extended to all financial instruments and not only to specific market segments. In addition to securities, the LEI […] could be used for investment funds, financial derivatives and loans.”

European Union: Revised prospectus rules require LEI to identify issuers, offerors and guarantors

In June 2017, the updated ‘Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC’ was published in the Official Journal of the EU.

The new EU prospectus rules state “to ensure that investors have access to reliable data that can be used and analysed in a timely and efficient matter, (…) all prospectuses approved, or alternatively a list of those prospectuses with hyperlinks to the relevant dedicated website sections, should be published on the website of the competent authority of the issuer’s home Member State. (…) Certain information contained in the prospectuses, such as the [International Securities Identification Numbers] ISINs identifying the securities and the LEIs identifying the issuers, offerors and guarantors, should be machine readable including when meta data is used.”

The prospectus regulation aims to ensure investor protection and market efficiency while enhancing the single market for capital. To that end, information made available to investors in a prospectus has to be sufficient, objective and accessible, while remaining easy-to-analyze, concise and comprehensible. The use of internationally agreed standards within this information, such as the ISIN and the global LEI, seems to be appropriate to identify the security and the issuer. As the ECB had stated in its opinion on the revised prospectus rules, “the unique identification of issuers, offerors and guarantors and of securities offered to the public or admitted to trading on regulated financial markets can only be successful if international standards such as the global LEI and ISIN are used.”

The mandatory use of LEI, as mentioned in Article 7 of the regulation, allows the issuers, offerors and guarantors of the security to be uniquely identified, thus providing key information to the investor. GLEIF and its partnering LEI issuing organizations are ready to handle LEI issuance to support this initiative.

India: Reserve Bank of India notifies of introduction of LEI for over-the-counter derivatives markets

  1. Rabi Sankar, chief general manager, Reserve Bank of India, confirmed on the bank’s website in June 2017 that the LEI system will be implemented “for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India in a phased manner.” He informs all current and future participants that they are required to obtain an LEI as per the timelines indicated on a schedule which can be found on the bank’s website. Entities without an LEI code will not be eligible to participate in the OTC derivatives market after the date specified in the schedule.

UK: From 1 October 2017 all issuers of securities admitted to an EU regulated market will need to have an LEI

Writing in Lexology in June 2017, Cameron McKenna from Nabarro Olswang reinforced that: “From 1 October 2017 all issuers of securities admitted to an EU regulated market, such as companies with a premium or standard listing on the UK Main Market, will need zo have an LEI in order to make valid regulatory announcements to the stock market.”

“Under new rules in chapter 6 of the Disclosure Guidance and Transparency Rules that will come into force on 1 October 2017 an issuer will […] be required to supply an LEI and classify regulated information according to the delegated regulation categories when it files regulated information with the [Financial Conduct Authority] FCA. An issuer will not need an LEI to file regulated information with the FCA before 1 October 2017. However, issuers are encouraged to obtain and use an LEI as soon as possible to help ensure that information relating to them can be found via the [National Storage Mechanism] NSM and, when it is operational, the [European Electronic Access Point] EEAP.” The EEAP is a web portal that will enable market participants and members of the public (end users) to search for regulated information stored by national official appointed mechanisms (OAMs) for storing regulated information. The UK’s OAM will be the NSM.

United States:

Bureau of Economic Analysis proposes to use LEI with Benchmark Survey of Foreign Direct Investment in the United States

In July 2017, the website of the Federal Register – The Daily Journal of the United States Government published details of a proposed rule from the Department of Commerce’s Bureau of Economic Analysis (BEA), to include a question on LEIs on the Benchmark Survey of Foreign Direct Investment in the United States. The benchmark survey takes place every five years.

“This proposed rule would amend regulations […] to set forth the reporting requirements for the 2017 BE-12, Benchmark Survey of Foreign Direct Investment in the United States. […] For the 2017 benchmark survey, BEA proposes changes in data items collected, the design of the survey forms, and the reporting requirements for the survey to satisfy changing data needs, improve data quality and the effectiveness and efficiency of data collection.”

The proposal is to add a question to collect the LEI of the U.S. affiliate on the BE12A and BE12B forms. It is anticipated that this will facilitate the process of matching entities across databases, “enabling better verification of data and linking to other surveys and publicly available data for these entities.”

White House Roundtable: Businesses call for better standardization in government data

Data Coalition reported that the White House and the Center for Open Data Enterprise hosted a Roundtable on Open Data for Economic Growth on Tuesday 25 July 2017. Representatives attended on behalf of industries including health care, finance and logistics, with the aim of recommending how the U.S. federal government’s data can be made more accessible for private-sector use.

Universal LEI adoption was a key proposal. “Companies presented specific recommendations, like the universal adoption of the LEI across all federal regulatory reporting regimes and the consistent application of common data schemas for health and finance information resources. The Data Coalition’s campaigns in Congress for legislative reforms, the Financial Transparency Act and the OPEN Government Data Act, closely match […the] recommendations.”

National Futures Association (NFA) adopts interpretive notice on swap valuation disputes

The National Futures Association (NFA) is the industrywide, self-regulatory organization for the U.S. derivatives industry, providing innovative and effective regulatory programs. In August 2017, it was reported in The National Law Review that the LEI is part of standardized information that must be included in a recently adopted interpretive notice that formalizes the process for filing swap valuation disputes with NFA. The interpretive notice will be effective for dispute notices required to be filed on or after 2 January 2018.

“NFA’s interpretive notice […] standardizes the information that must be included in the notice, including (as applicable) NFA identifier, LEI, dispute reportable date, dispute type, dispute termination date, receiver/payer, disputed amount, CSA/netting agreement identifier, counterparty name, counterparty LEI or privacy law identifier, unique swap identifier, base currency notional amount, base currency code, notional value USD equivalent, asset class, and product type.”


Financial Stability Board publishes twelfth progress report on OTC derivatives market reforms

The Financial Stability Board (FSB) is established to coordinate at the international level the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. The FSB is the founder of GLEIF.

In June 2017, the FSB published the ‘OTC Derivatives Market Reforms Twelfth Progress Report’ on implementation, which provides an update on the current status and uptake of the LEI globally.

According to the report the LEI is now embedded in the rules of 40 jurisdictions, 14 of which are FSB jurisdictions. By the end of May 2017 over 513,177 entities from 200 countries had obtained LEIs with 376,064 of those being from FSB member jurisdictions. The numbers show that LEI coverage has grown in recent years.

From May 2017 “the Global LEI System (GLEIS) started to collect and publish information on the direct and ultimate parents of legal entities. Authorities continue to monitor progress in the uptake and renewal of LEIs and may consider taking action as needed. Participants in the GLEIS are also working on establishing a system of registration agents, facilitating renewals, monitoring lapsed LEIs and better distinguishing entities that have ceased to operate.”

The report asserts that “EU counterparties face challenges using the LEI to identify counterparties outside of the EU”, because some in other jurisdictions still do not have an LEI. This could, however, be a transitional issue as the LEI is adopted across jurisdictions.

Global LEI System standards: LEI Regulatory Oversight Committee launches consultation on corporate actions and data history

On 26 July 2017, the LEI Regulatory Oversight Committee (LEI ROC) launched a public consultation on corporate actions and data history in the Global LEI System (GLEIS). The consultation focuses on 17 corporate actions, such as the change of name and address, mergers and spinoffs, which impact data in the GLEIS. Responses to the consultation should be sent to by COB 29 September 2017. Below is the extracted Executive Summary from the consultation document:

In 2016 the LEI ROC “formed a working group under its Committee on Evaluation and Standards to evaluate how corporate actions affect the legal entity reference data recorded in the GLEIS. After consultation with the Global LEI Foundation (GLEIF), Local Operating Units (LOUs) of the GLEIS, and the LEI ROC Private Sector Preparatory Group, the ROC has identified 17 corporate actions which impact data in the GLEIS, be it the reference data, relationship data or the substance of the entity itself. Some of these corporate actions are, at least in part, already covered by the data recorded in the GLEIS. However, the LEI ROC has identified possible improvements concerning the information that should be collected on these corporate actions, how the information should be obtained, and how the data should be arranged for later use. The relationship and reference data within the GLEIS should be granular enough to enable analysis and visualization of changes to an entity and its relationships with other entities, both from the present looking backward and from the date of an entity’s entry into the GLEIS looking forward to the present. This consultation document seeks input from the public on these possible improvements, mainly:

  • Concerning changes in names, trading names, legal address, headquarter address, as well as the transformation of an international branch into a subsidiary (and conversely the transformation of a subsidiary into an international branch) and some changes affecting funds, it is proposed to (i) provide a history of data record changes due to corporate events and actions that can easily be searched by end-users of the GLEIS and (ii) add to the LEI reference data the effective date of the change (as opposed to when the change is recorded in the system). The same proposal would apply for some of the new elements proposed in this document.
  • Concerning mergers, the GLEIS currently provides easy access to information on the successor of a merged entity, and it is proposed to facilitate the retrieval of predecessor entities.
  • Concerning complex acquisitions (reverse takeovers), views are sought on which LEI should survive, and whether registrants should have the option of choosing.
  • The creation of a spin-off relationship is envisaged, the reporting of which could be optional. Views are sought on this possibility, as well on whether a materiality threshold should apply.
  • It is envisaged to clarify the definition of inactive entities to adequately capture entities that are still legally in existence but have no operations. This clarification may support a better classification of entities that have currently a lapsed status.
  • Views are also sought on whether a specific data element should be added to signal that an entity is under liquidation.
  • Concerning corporate actions that result in the disappearance of the reporting entities (mergers, dissolution) and therefore may not be reported by the entity, it is proposed to implement alternative sources and methods to update the information (such as corporate action data feeds). This proposal could help detect cases where entities currently appearing as “lapsed” are actually inactive or expired. Such an approach could also help to improve the overall timeliness and quality of data in the GLEIS by creating a cost-effective way for LOUs to be notified of potential changes and to elicit updates to LEI records by the affected entities (through the process of self-registration).”

ISDA and GFMA remind firms within and outside the EU to act now to ensure compliance with MFID II / MiFIR

The International Swaps and Derivatives Association (ISDA) and the Global Financial Markets Association (GFMA) have published a memo reminding market participants that they will shortly be required to have an LEI under European regulation and highlighting that this will also apply to non-EU entities in many cases. Together, these bodies urge firms, large and small, to act now to ensure they comply.

GLEIF is fully aligned with this advice, and stresses again that market participants must comply with the forthcoming MiFID II / MiFIR by obtaining an LEI as soon as possible. Failure to obtain an LEI (by the firm or its client) in time will prevent firms from being able to comply with the reporting requirements applicable in the EU as of 3 January 2018.

From 1 November 2017 under the European Market Infrastructure Regulation (EMIR), EU trade repositories will be obligated to reject trade reports that do not contain an LEI.

The LEI issuing organizations are fully prepared and ready to support both legal entities that need to obtain an LEI and firms interested in acting as a Registration Agent. (For detailed information on the Registration Agent concept introduced by GLEIF to facilitate access to the LEI issuer network, refer to the ‘related links’ below.) Advance planning and early registration is strongly encouraged however, to ensure that LEIs will be issued in time for MiFID II / MiFIR. If registration is delayed until the fourth quarter of 2017, the issuance of LEIs before the MiFID II / MiFIR deadline cannot be guaranteed.


Editorial Comment:  BIIA supports the LEI effort in terms of achieving greater transparency in business transactions and the standardization of ‘legal’ identities of institutions and business entities.  The LEI efforts are now expanding into the realm of ultimate parent linkages.  This goes beyond the original charter of developing standards for creating a unified entity records.  Ultimate linkages is a critical element in credit reporting, a private sector activity.  The GLEIF foundation should stay out of this commercial activity.  In essence the LEI is reinventing the ‘wheel’ of legal entities.  The current count of LEI is roughly 400,000 records compared to commercial rating and credit information players with up to 250 million records.