Legal Entity Identification: The Long and Winding Road Toward a Global Standard
Report Summary
Legal Entity Identification: The Long and Winding Road Toward a Global Standard
A legal entity identification standard has long been desired by financial institutions seeking to better monitor counterparty risk; can regulators’ recent push to establish such a standard avoid the same fate as its predecessors?
London, 15 March 2012 – A new report from Aite Group highlights the issues standing in the way of legal entity identification (LEI) reform in the United States and Europe. Based on an Aite Group survey of 20 financial institutions and 30 vendors, the report provides a sentiment analysis of current attitudes within the capital markets community toward the recently proposed ISO LEI standard—ISO 17442—and its proposed utility.
Until now, financial institutions have been forced to rely on internally developed proprietary systems for entity identification or appropriate the patchwork of identifiers provided by the vendor community. The financial crisis and the resulting focus on systemic risk, however, have brought this lack of a global legal entity identifier (LEI) to light for the regulatory community. Regulators recognize that globally adopted legal entity identification standards are necessary to seamlessly monitor systemic risk and to better track the activities of entities involved in the markets; market participants overwhelmingly agree. While a number of efforts have been made over the years to establish such a standard—including the work of the International Organization for Standardization (ISO), with its International Business Entity Identifier (IBEI)—none has been successful in achieving broad adoption. The industry’s current hopes rest with the work of the Office of Financial Research (OFR), which sits under the auspices of the U.S. Treasury and has been tasked with laying the data groundwork for the monitoring of systemic risk.
“The standard might be in development, but will it see the light of day if key reforms fall apart?” asks Virginie O’Shea, analyst with Aite Group and author of this report. “Will it have any impact on the day-to-day operations of financial institutions beyond providing another ID to cross-reference to? These are the key questions currently hanging over the future of the LEI—questions that are not likely to be answered until regional and national regulators directly incorporate reporting requirements using the standard in their regulations.”
This 52-page Impact Note contains 19 figures and five tables. Clients of Aite Group’s Institutional Securities & Investments service can download the report.