LEI: the global who's who

How will the LEI help financial institutions to mitigate their counterparty risks and ML and CTF risks?

An LEI is a high quality legal identifier of legal entities created on request the G20 and FSB as a broad public good for assessing risks in financial markets and for financial transactions.

In June 2014 GLEIF (Global Legal Entity Identifier Foundation) was established by the FSB with the mandate to make the global LEI system operational for the benefit of the users of the private and public sector.

GLEIF delivers a service available with high quality LEI key reference legal data of a legal entity (based on the ISO 17442 standard) free of charge or registration for any user on www.gleif.org.

Jean Claude Trichet, the former president of the European Central Bank expressed on 10 September 2010, the value of a standard for legal entities as follows:

• Each one of us needs it
• No one can do it for themselves
• There can only be one of it; hence
• We must do it together

Status of the LEIs program

Early November 2017 an LEI was issued to over 700.000 legal entities. An overview of the distribution of the issued LEIs over the more than 150 jurisdictions is available in “LEI statistics” on www.gleif.org. A monthly quality report of the LEI data is published based on an extensive quality program than is more intense than any business register or data vendors uses to ensure the quality of its data.

From May 2017 the roll out of the Who Owns Whom service, with the addition of the direct and ultimate parents of the LEI, started and will be completed in summer 2018. Early 2018 the mapping-services of LEI to BIC (together with SWIFT) and LEI to ISIN  (together with ANNA) are planned to be available.

Many listed companies of the 85 major securities exchanges with over 50.000 listed companies (source IFRS data) in the world already have an LEI mainly as a consequence of regulations applicable for these companies or of exchanges.

The LEI ROC (www.leiroc.org), overseer of GLEIF, reported in their Progress Report of 5 November 2015 that there “could be between 200 and 400 million legal entities eligible for an LEI”.

Risk management initiatives to include the LEI

 Public Sector

Legislators and regulators of many jurisdictions started to include the LEI in their legislation or rulemaking, so far mainly focussed on the adoption of the LEI in capital and money markets, for among more the assessment of systemic risks or for supervision of market participants. See for the overview of the regulatory use of the LEI in many jurisdictions: https://www.gleif.org/en/about-lei/regulatory-use-of-the-lei/

The BCBS  published in June 2017 its “Guidelines on the sound management of risks related to money laundering and financing of terrorism”. The LEI of the originator and of the beneficiary are advised  for cross border payments messages. Their general guide to account opening mentions the LEI as additional information (on the basis of risks) with the remark that “subject to the developments of the LEI project this information may be required in the future”.

 Private Sector

 McKinsey ad GLEIF Published in October 2017 their White Paper: The Legal Entity Identifier: The value of the Unique Counterparty ID. The benefits of the LEI for identifying counterparties are explained with three selected business cases for capital markets, trade finance and commercial credit. Risk management will become more effective with the use of the LEI and in addition the operational cost could be substantially reduced.

The 30 global systemically important banks, as recognized by the FSB (www.fsb.org), that are actively involved in capital and money market transactions, supply chain finance and transaction banking, have been approached to support the LEI program to be able to manage their risk more effective and at the same time reduce their operational costs. A GLEIF GSIFI Stakeholder Forum has been agreed and will be operational early 2018.

The LEI is not only relevant for the financial industry but also for financial transactions and risk mitigation for all parties of the supply chain.This is already recognized by the GS1 Board (www.gs1.org) with a long history on standards for the supply chain (food, non-food and healthcare). GS1 Mexico and GS1 Germany decided to become an LEI issuer and more GS1 NMOs (National Members Organisations) are expected to follow in the near future.

All large data vendors and KYC utilities include the LEI data already in their services. They appreciate the high quality of the GLEIF data and the fact that the services are free of charge.

Technology vendors active in delivering services (business applications) for risk managemnt are reviewing to include the LEI in their services. These vendors include also vendors that deliver reg tech, liquidity management  and risk management applications.

Read more about the LEI initiative, download the full report here. 

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