Legal Entity Identifier

When Lehman Brothers failed in 2008, its counterparties struggled to assess their total exposures to Lehman. Financial regulators were also unclear about the consequences of a Lehman failure in part because no industry-wide standards existed for identifying and linking financial data representing entities or instruments. Standards are needed to produce high-quality data. And high-quality data are essential for effective risk management for financial companies, especially to assess their connections and exposures to other firms and regulatory oversight.

The Legal Entity Identifier, or LEI, is a data standard — like a bar code for precisely identifying parties to financial transactions. The OFR has led the global LEI initiative as it has progressed from conception to full-fledged operational system in just a few years.

The LEI can help the financial industry, regulators, and policymakers trace exposures and connections across the financial system. It also generates efficiencies for financial companies in internal reporting, risk management, and in collecting, cleaning, and aggregating data. In addition, the LEI is expected to ease companies’ regulatory reporting burdens by reducing overlap and duplication with respect to the multiple identifiers reporting firms must manage.

Although the worldwide LEI system reached significant milestones in 2014 as the final components of the governance framework of the LEI system were introduced, only some aspects of financial reporting in the United States and abroad require use of the LEI and these, in substantial part, rely on voluntary implementation. Although these steps have driven LEI adoption across the globe, with more than 300,000 LEIs issued to entities in 180 countries as of January 2015, regulators should mandate the use of the LEI in regulatory reporting. Universal adoption is necessary to bring efficiencies to reporting entities and useful information to the Financial Stability Oversight Council, its member agencies, and other policymakers.