Most of the buzz around the water cooler for those responsible for enterprise reference data in financial services has been around the recent G20 meeting in Switzerland on the details of the proposed Legal Entity Identifier (LEI). The LEI is designed to help regulators manage and monitor systemic risk in the financial markets by creating a unique ID to recognize legal entities/counterparties shared by the global financial companies and government regulators. Agreement to adoption is expected to be decided at the G20 leaders’ summit coming up in June in Mexico as regulators decide the details as to the administration, implementation and enforcement of the standard. Will the new LEI solve the issues that led to the recent financial crisis?
Looking back at history, this is not the first time the financial industry has attempted to create a unique ID system for legal entities, remember the Data Universal Numbering System (DUNS) identifier as an example? What is different from the past is that the new LEI standard is set at a global vs. regional level which had caused past attempts to fail. Unfortunately, the LEI standard will not replace existing IDs that firms deal with every day. Instead, it creates further challenges requiring companies to map existing IDs to the new LEI, reconciling naming differences, maintain legal hierarchy relationships between parent and subsidiary entities from ongoing corporate actions, and also link it to the securities and loans to the legal entities.
Assuming LEI delivers what is promised both regulators and industry firms agree it will benefit the industry as a whole, as long as it is adopted globally and enforced accordingly as discussed in the April 2012 Inside Reference Data special report on LEI. Cheryl Mack, head of data management at UBS Global Asset Management states in the report, “Having a unique identifier that can be cross referenced through multiple systems will provide more transparency, consistency, and accuracy.” Paul Janssens, LEI program director, securities markets at SWIFT states, “A unique LEI is important because the LEI is a reference data tool to standardize how a counterparty is identified on financial transactions.”
While many within the industry are waiting to see what the regulators decide in June, existing issues related to the quality, consistency, and delivery of counterparty reference data and the downstream impact on managing risk needs to be dealt with regardless if LEI is passed. In the same report, I shared the challenges firms will face incorporating the LEI including:
- Accessing, reconciling, and relating existing counterparty information and IDs to the new LEI
- Effectively identifying and resolving data quality issues from external and internal systems
- Accurately identifying legal hierarchy relationships which LEI will not maintain in its first instantiation.
- Cross referencing legal entities with financial and securities instruments
- Extending both counterparty and securities instruments to downstream front, mid, and back office systems.
Will LEI solve the existing challenges related to systemic risk management? The answer depends on who you ask of course, however the quality, consistency and accessibility issues will remain with our without LEI therefore firms who have existing challenges should not wait to see if LEI is adopted globally as it will take some time to implement, adopt, and place effective enforcement practices to ensure the value expected is realized. Informatica addresses these long standing, complex and critical problems with our latest Informatica Reference Data Management solution designed to meet the needs of today while providing a foundation for managing counterparty, client and securities reference data at an enterprise level. For more information on Informatica’s Reference Data Management solutions, click here to see a short video or download our Counterparty/LEI solution and Securities Reference Data solution sheets today.