G-20 affirms LEI mission as information industry demands more action

Data industry executives say national regulators must now champion the legal entity identifier project if risk management goals are to be met

Julia Sutton, Royal Bank of Canada

The G-20 reaffirmed its support for the international legal entity identifier (LEI) programme last weekend, just as information industry executives called for more support for the initiative from national regulators at an industry conference.

Panellists at the World Financial Information Conference in San Francisco in mid-October called for market participants to discuss the LEI project with local regulators, and ask them to adopt it in their rulemaking. "It has to be regulated. There are so many benefits, so it makes no sense not to do it," said Julia Sutton, global head of customer accounts operations at Royal Bank of Canada.

Launched in July by the US Office of Financial Research, LEIs were invented so that firms' position data could be aggregated and made available to regulators. Proponents of the LEI programme say it will help reduce risk in the global financial system, as well as at individual firms. Some vendors say it should be the definitive key in linking financial data with individual entities, and are proposing new LEI-based solutions where information about securities, news, historic information and financial data is linked directly to LEIs and then tracked to help clients model and manage market and credit risk in their portfolios.

In an audience poll, the majority of financial information professionals at the conference said LEIs will be a positive global game-changer. Panellists agreed with the audience, saying the need for change in legal entity data management is obvious. "The retail industry would not have been what it is today without the barcode. That's how the game changes," said Francis Gross, head of the external statistics division at the European Central Bank. He added that the industry is in for a learning process – "but we will get there."

However, information industry executives expressed their disappointment that the G-20's statement didn't go further when it was published days later. "We underscored our support for a global legal entity identifier system which uniquely identifies parties to financial transactions with an appropriate governance structure representing public interest," the G-20 finance ministers and central bankers said in a communiqué issued after their meeting in Paris on Saturday.

Mark Davies, head of reference data at RBS Global Finance Services in London, says that although the statement contained little that is new, every expression of support for the LEI is important. "This doesn't add too much to the Financial Stability Board comments that we have already seen," Davies says. "But it is still an important statement and every endorsement advances the project. The real tipping point comes when we see LEI written into global regulation."

Davies echoes the sentiments of the conference panellists, saying regulators must start to write LEI into rulemaking, and emphasises that the priority is now establishing a governance structure. "In this G-20 statement, an ‘appropriate governance structure' is referenced and all parties agree this is essential to ensuring ongoing integrity," he says. "Global regulators will be engaging with their industry counterparts to shape this over the coming weeks, and this activity needs to be concluded quickly for the solution to be built out."

David Thomas, the London-based global head of client data at Barclays Capital, welcomes the statement, although he says he had hoped it would include a timeframe for implementation. "I thought it was an important step, but I was hoping for something a little bit more tangible than simply further support – not that that is a negative," Thomas says. "I am really looking for one of the bigger countries in Asia or Europe to come out and fully support it by giving their backing to the LEI initiative and probably more important than giving their backing is giving a timeframe for when they are going to adopt it for their own regulatory environment."

Mike Atkin, managing director of the US Enterprise Data Management Council in Washington, DC, describes the announcement as "fantastic" and says the statement itself is an important part of the governance mechanism requirement to get LEI implemented. "It is about the mechanism to get the world co-ordinated on this kind of recommendation, and LEI is the first one, so having G-20 indicate its support for the recommendation helps that process along significantly," he says.

Atkin says practical steps for the implementation of the LEI will come out of the workshop recently held by the Financial Stability Board in Basel.

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