The Regulatory Oversight Committee (ROC), FSB-mandated overlord of the global LEI system has published a document containing a table of the four digit prefix numbers randomly allocated to each pre-LOU (Local Operating Unit). Each pre-LOU must qualify and be sponsored by a national regulator. The London Stock Exchange for instance, sponsored by the FCA, will be identified by a 2138 prefix. The table will be updated as more pre-LOU’s are accepted.
The LEI is a 20- digit alphanumeric code, the first unified, entity-unique global identification system. Born from the chaos of the Lehman Brothers collapse the system will go a long way to instantly and precisely identifying counterparties and their interconnections. A quick update on LEI progress so far. The G20-endorsed end goal is to create a unique global identifier for every distinct legal entity involved in a financial transaction. Conceived and governed as a public good, funded by registration fees, the system has a tri-partite governance structure. The ROC is a stand-alone committee composed of over 70 regulatory authorities from across the globe, it sets standards and principles. The Central Operating Unit (COU) will be set up as a not-for-profit foundation, and will oversee and ensure uniform standards and procedures among the country-based Local Operating Units (LOU). The LOU’s are local registrars, validating LEI applications and maintaining reference data. When the Basel-based COU is established, the pre-LOU’s will drop the “pre” and the pre-LEI will be renamed to GLEI (Global LEI).
LEI’s are effectively mandated by Dodd-Frank and EMIR, and it is virtually certain that the “equivalent” legislation of other G20 countries will include this requirement. Their usage and uptake by other areas of the economy eg. purely manufacturing firms, will be on a voluntary basis. Although a fairly arcane, financial-operational subject, the LEI system will have far-reaching implications across all areas of a bank’s business. If embraced as an opportunity rather than merely added to the long list of regulatory box-tick burdens; it will result in vastly improved data hygiene, reconciliation, aggregation and analysis. The existence of one unique identifier will allow banks to measure a client’s true profit contribution, enable the leverage of existing KYC data, de-silo collateralisation netting and accelerate the entire process from onboarding to trade confirmation and regulatory reporting. Over one month after the EMIR trade-reporting deadline, although variable by jurisdiction, LEI registration has been piecemeal at best. While registration fees are not onerous, the costs of internal system updates and maintenance may be significant. Exact cost/benefit analysis will be particular to each organisation, however the new primacy of data and data-handling is common to all.