System Taking Shape to Assign IDs for Financial Market Participants
Published: July 8, 2013
This is an exciting time for those of us at the Treasury’s Office of Financial Research and others around the world who have been working to establish a global system for precisely identifying parties to financial transactions.
The Legal Entity Identifier, or LEI, is like a bar codea unique ID for companies participating in global financial markets. The need for an LEI system has long been recognized. However, the recent financial crisis exposed the critical nature of that need, when government regulators and market participants were unable to quickly assess exposures to failing firms or the network of interconnections among financial companies and markets.
Today, the efforts to produce an LEI system are coming to fruition. We have reached agreement on a framework for global acceptance of so-called pre-LEIs that will underpin an interim LEI system for producing fully standardized codes until the LEI system is fully up and running.
Also, construction is well under way on the governing framework for the LEI system. At the top of that framework is a fully operational Regulatory Oversight Committee. The committee convened for the first time in January and met most recently this month to finalize details for creating a nonprofit foundation to ensure adherence to governing principles and standards in the implementation of the LEI. The final steps will be to set up a worldwide network of Local Operating Units to handle LEI registrations and provide the identifiers. Nine candidates to become Local Operating Units have been established or are in the planning stages.
As the build-out of the system continues, we are pleased that global acceptance is now expected for the more than 50,000 pre-LEIs that are already in use. When the LEI system is fully implemented globally, government entities like the OFR will be better equipped to assess potential threats to financial stability, while financial firms will have not only a better view of their risks and interconnections, but also reduced costs for collecting, cleaning, and aggregating data, and in reporting data to regulators.
Matthew Reed is Chief Counsel at the Office of Financial Research and Chair of the LEI system’s Regulatory Oversight Committee