Registries love unique numbers, well most registries that is. For as long as there have been filing systems we have looked at ways to index them. Applying sequential or unique numbers to each record is the most common method. These numbers are very useful for registries and for those looking to locate the records of an entity (whether via a paper file or an electronic index). The problem is that lots of other government agencies like unique numbers too; their own unique numbers. Tax authorities, workers compensation services, securities regulators and statistics agencies all love to allocate numbers to the entity with whom they are interacting. The poor business owner or their agent then has to navigate this myriad of numbers to ensure they provide the right number to the right agency for the right entity. Enlightened jurisdictions have recognised this folly (well to be fair – this legacy of paper based systems) and have moved to introduce unique identiﬁers or single business numbers. Singapore, Norway and Australia for example issue entities with one number. The multiple agencies of government then reference their internal systems to this number enabling the business owner to have a more simple experience of government. The Norwegians argue “It is essential that information is linked to the correct individual or legal entity. The uniqueness of an identiﬁer prevents the intentional or unintentional duplication of individuals or legal entities within the scope of its use. Prevention of duplication is especially important where ﬁnancial beneﬁts are granted to legal entities or where liability to third parties is concerned. When exchanging information, public authorities make sure that they refer to the same entity by using the same unique identiﬁer.” [Business Registration Reform Case Study, Norway August 2011 available for download from the World Bank] http://www.brreg.no/english/coordination/number.html New Zealand and Canada are among many jurisdictions looking to or beginning to introduce a single business number. These unique identifiers are logical and useful within a country but the whole thing gets more complicated when we start to think globally. A few years ago the European Union Commission invested in some research to explore the barriers to interoperability of the various members state’s business registries. The ‘BRITE’ project (Business Register Interoperability Throughout Europe was a research project on the establishment of links between Business Registers. An output of the project was the REID (Registered Entity IDentifier) initiative. The REID is a proposed number (well prefix) that is unique at the world level and can identify entities in business registers. The REID initiative involves the establishment of a register of registers. Where each international jurisdictions details would be held along with the legal structures that are held within those jurisdictions. This meta-data would form the prefix that would be added to the existing numbering regimes within the registries of those jurisdictions. The elegant part of this proposal was the avoidance of the need for individual registries to have to renumber the entities within their existing registers. But it gets more interesting still! The Financial Stability Group, have recommended a Legal Entity Identifier (LEI). The FSB endorses the recommendation of the Expert Group that they adopt the recently issued standard ISO 17442:2012, Financial Services – Legal Entity Identifier (LEI). The standard was published by the International Organisation for Standardisation on 30 May 2012. The standard includes: the official name of the legal entity, the address of the headquarters of the legal entity, the address of legal formation, the date of the first LEI assignment, the date of last update of the LEI, the date of expiry, business registry information (if applicable), All of this will be referenced by a 20 digit alphanumeric code. As with the REID initiative the FSB LEI recommends a central registry that would oversee the management of and access to the standards. This session aims to provide some background on the LEI for those who are not aware of it and will look at how it may impact on the existing business registers or numbering regimes in place.
Filing bay in the Companies Registry Mauritius
Who are the FSB? The Financial Stability Board has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The ROC will have the ultimate responsibility for the governance of the global LEI system. It would comprise authorities which support the core principles and purposes of the system (as set out in the High Level Principles) and that are committed to support the governance in the public interest. The FSB recommends that the governance principles and obligations are set out in a global LEI Regulatory Oversight Committee Charter that should be drawn up. Endorsement of the Charter by the FSB or G-20 would establish the ROC. Membership of the ROC will be open to all authorities wishing to participate in the global LEI system and that are committed to the objectives and commitments highlighted in the Charter. An Executive Committee would be appointed by the Plenary to steer the work under guidelines to be set out in the Charter.
The Central Operating Unit is the pivotal operational arm of the global LEI system and has responsibility for delivering high quality operations. In particular, the COU has responsibility for ensuring the application of uniform global operational standards and protocols that deliver: global uniqueness of the LEI; seamless, open access to the global LEI and to high quality reference data for users (with the depth of access controlled by appropriate access rights); as well as protocols and methods for how local systems can connect to the COU, including the necessary support of the local systems. The COU will be a legal entity in the form of a not for profit foundation that will rely on broad industry participation, expertise and knowledge to identify and develop the most technologically, financially and legally sound methods to implement the global LEI system in line with the standards and framework defined by the ROC. A Board of Directors (BOD) will direct the operations of the COU. The Board may include both industry representatives and independent participants. The COU’s BOD, in consultation with the ROC, will provide recommendations on whether to outsource any particular function or operation of the global LEI system or whether to develop a particular solution “in-house.” Those recommendations should be consistent with the High Level Principles of the global LEI system and reflect the public good nature of the system.
Local Operating Units will provide the primary interface for entities wishing to register for an LEI. They will be the local implementers of the global system. LOUs will offer facilities such as local registration, validation, and maintenance of reference data; protection of information that must be stored locally; and will facilitate the use of local languages and organisation types. LOUs could build on local business registry or numbering services to maximise the utilisation of local infrastructures. In some jurisdictions, there may be multiple LOUs to encourage competition, in others there may be one which could reside or be operated in the private or public sector, in yet others there may be no LOU and entities wishing to acquire an LEI will need to apply across borders or to the COU until the local infrastructure is established. In the latter case, if an LOU is subsequently created, it will be important to ensure that the LEI is portable (transferable) to the local jurisdiction.
An important objective in the system design is to ensure that the global LEI system has a self sustaining funding model. The model must ensure that the system is based on non-profit cost recoveryand that there are no monopoly rents accruing to service providers. The proposed steady state funding system has two components: a local discretionary charge; and a common fee for support of central functions of the COU and ROC. The cost of obtaining an LEI should be modest and not a barrier to acquisition. Access to the LEI and associated reference data will be free and open to all users, and there should be no ‘bundling’ of other services alongside the LEI by providers which forces users to pay directly or indirectly for the LEI.
Second, the Expert Group is continuing to review the LEI eligibility criteria as well as the reference data that the regulatory community views as essential and, consequently, would require to be associated with the identifier.
In the first round of discussion, the Expert Group agreed that the following six data elements will all form part of the minimum set of reference data attributes that will be required by the regulatory community on the launch of the LEI: The official name of the legal entity; The address of the headquarters of the legal entity; The address of legal formation; The date of the first LEI assignment; The date of last update of the LEI; The date of expiry, if applicable.This is information that we hold…
The FSB endorses the recommendation of the Expert Group that they adopt the recently issued standard ISO 17442:2012, Financial Services – Legal Entity Identifier (LEI). The standard was published by the International Organisation for Standardisation on 30 May 2012. The standard includes: the official name of the legal entity, the address of the headquarters of the legal entity, the address of legal formation, the date of the first LEI assignment, the date of last update of the LEI, the date of expiry, business registry information (if applicable), All of this will be referenced by a 20 digit alphanumeric code.
Two weeks ago, I proposed that tracking entities could be more accurate if the legal entity identifier (LEI) gets linked to other key identifiers in the industry.Before that ambition can be realized, however, issues basic to LEI implementation remain, as participants in a Virtual Roundtable conversation to appear in an upcoming Inside Reference Data special report are saying. There are concerns about identifier duplications, discrepancies between the local operating units (LOUs) being set up to administer the LEI, and costs for the whole effort.In the dialogue, Simon Taylor, head of legal entity change in the group data services unit of UBS, says duplication of entities could still cause problems for assigning CICIs, the US Commodity Futures Trading Commission's interim identifier and pre-cursor to the LEI. Taylor believes an underlying country-specific registration ID could increase the accuracy of identifiers. Scott Preiss, a vice president at Cusip Global Services, says National Numbering Agencies (NNAs) can improve the value of the LEI initiative with their expertise.That points to efforts to leverage overall benefits from the LEI, about which Tony Brownlee, managing director of data systems at Kingland Systems, observes that complex internal systems and processes in the largest firms could benefit from the presence of LEIs. Taylor adds that the ratings agencies ought to add LEIs to issuer files, which would produce a consolidated, straightforward view of ratings.Tom Cosgrove, vice president of risk products at Alacra—the workflow tools provider offering the Alacra Authority File described in that prior column as a possible means for linking multiple identifiers—sees issues with the potential variations that could result with different local operating units (LOUs) administering the LEI. Cosgrove suggests that the Central Operating Unit (COU) will have to carefully monitor the LOUs, adding that LOU operations should be synchronized to have a single LEI database. Without a federated structure for LEI registration and administration, says Mark Davies, general manager of Depository Trust and Clearing Corporation counterparty data subsidiary Avox, differences between LOUs are inevitable.The basic issues with LEI implementation include costs, of course. Costs will come from a host of areas, including systems integration, data migration, internal systems adoption, data remediation and data governance, according to participants in the roundtable. Avox's Davies says costs should be expected—but there are benefits to be gained from LEI investments, such as better support for risk management and reporting functions.Positioning the LEI as the basis to build links and compatibility with other identifiers is still a good idea, but it appears the industry still has to get the LEI house in order before it can credibly go forward with an effort like that.
With the ongoing development of technology it is likely that the LEI as with the existing company number will become irrelevant to the searching public. Numbers will be represented by QR codes, barcodes or even RFID tags. These tools will mask the underlying ‘cleverness’ from the business person in much the same way that a citizen confidently (but in full ignorance of the cleverness) uses a bankcard.
On 8 June, 2012, the FSB published a report ‘A Global Legal Entity Identifier for Financial Markets’, which set out global LEI system High Level Principles and 35 recommendations for the development of a unique identification system for parties to financial transactions. The G20 endorsed the report at the Los Cabos Summit and asked the FSB to take forward the work to implement the system. In response to the G20 Leaders’ call, the FSB established the LEI Implementation Group (“Implementation Group”) consisting of experts from the global regulatory community. The FSB report defines the scope of coverage "a ‘legal entity’ refers to a legal person or structure organised under the laws of any jurisdiction. Legal entities include, but are not limited to, unique parties that are legally responsible for the performance of financial transactions or have the legal right in their jurisdiction to enter independently into legal contracts". Natural persons are excluded from the scope.
Our Number’s Up!A discussion on registry numbering and thepotential impact of the LEI on businessregistries.
A PLAN (OF SORTS) FOR THIS TALK• Registry Numbering - what we all know• The Legal Entity Identifier (LEI) – what is it?• The LEI – what will it mean for business registries?• Will it matter in the end?
WHO MAKE UP THE FSB? CONTD.International Organisations• Bank for International Settlements (BIS)• European Central Bank (ECB)• European Commission (EC)• International Monetary Fund (IMF)• Organisation for Economic Co-operation and Development (OECD)• The World BankInternational standard-setting bodies and other groupings• Basel Committee on Banking Supervision (BCBS)• Committee on the Global Financial System (CGFS)• Committee on Payment and Settlement Systems (CPSS)• International Association of Insurance Supervisors (IAIS)• International Accounting Standards Board (IASB)• International Organization of Securities Commissions (IOSCO)
HOW WILL THEY BE ISSUED?We need some acronyms…• ROC – Regulatory Oversight Committee• COU – Central Operating Unit• LOU – Local Operating Unit
REGULATORY OVERSIGHT COMMITTEE• Has been established and has now taken formal control of the Global LEI Initiative from FSB• Met in Toronto in January 2013 and adopted a Charter• Needs to create the Global LEI Foundation which will operate the COU
CENTRAL OPERATING UNIT• Operational arm of the Global LEI System• Will likely be a not for profit legal entity• Controlled by a Board of Directors (BOD)• May outsource any particular function, having regard to the public good nature of the system.
LOCAL OPERATING UNIT• Primary Interface for entities wishing to register for an LEI• Will offer facilities such as: – local registration, – validation, – maintenance of reference data – and will facilitate the use of local languages and organisation types.
PRE-LOUSpre-LOUs have been given permission to issue pre-LEIs (that comply with the ISOstandard):• Depository Trust and Clearing Corp & SWIFT DTCC/SWIFT CICI 5493 (USA)• WM Datenservice 5299 (Germany)• Central Bank of Ireland Irish Stock Exchange 6354 (Ireland)• Palestine Securities Exchange 1392 (Palestine)• Takasbank 7890 (Turkey)
FUNDING FINANCE FEES• Self sustaining model• A local discretionary charge and…• A common fee to support COU and ROC.• The cost of obtaining an LEI should be modest and not a barrier to acquisition• Access to the LEI and associated reference data will be free and open to all users
AN EASY NUMBER TO REMEMBER…• Characters 1-4: A four character prefix allocated uniquely to each LOU.• Characters 5-6: Two reserved characters set to zero.• Characters 7-18: Entity-specific part of the code generated and assigned by LOUs according to transparent, sound and robust allocation policies.• •Characters 19-20: Two check digits as described in the ISO 17442 standards.
AN EASY NUMBER TO REMEMBER• The official name of the legal entity;• The address of the headquarters of the legal entity;• The address of legal formation;• The date of the first LEI assignment;• The date of last update of the LEI;• The date of expiry, if applicable.
WHO WILL BE LEI’D ?Any legal entity that enters into a financial transaction will be eligible for anLEI. For example:• Transacting entities• Issuing entities• Reference entities• Reporting entities• Ultimate parent entitiesOther participants in financial transactions (including exchanges, utilities,registrars, regulators, and industry organizations) will obtain LEIs asdeemed necessary in the future. Individuals (i.e., natural persons) areexcluded from LEI’s scope.
WHAT ARE PEOPLE SAYING?• Tracking entities could be more accurate if the legal entity identifier (LEI) gets linked to other key identifiers.• There are concerns about identifier duplications, discrepancies between the local operating units (LOUs) being set up to administer the LEI, and costs for the whole effort.• An underlying country-specific registration ID could increase the accuracy of identifiers
WHAT ARE PEOPLE SAYING?• Issues with the potential variations that could result with different local operating units (LOUs) administering the LEI.• The Central Operating Unit (COU) will have to carefully monitor the LOUs, LOU operations should be synchronized to have a single LEI database.• The basic issues with LEI implementation include costs, of course. Costs will come from a host of areas, including systems integration, data migration, internal systems adoption, data remediation and data governance, according to participants in the roundtable
WHAT WILL THE LEI MEAN FOR BUSINESS REGISTRIES?The 1000,000 dollar question…Registries might become LOUsRegistries can consume LEIs (xml feed)Registries might reference LEIs (as part of the searchdata)Registries might not do anything
THE QUESTION I CAN’T ANSWER• When will it impact (if at all) on business registries?
THANK YOUAdditional resources/ reading on the LEI:• Visit the Financial Stability Board’s website at http://www.financialstabilityboard.org/• A Global Legal Entity Identifier for Financial Markets (8 June 2012) http://www.financialstabilityboard.org/publications/r_120608.pdf• White paper on Legal Entity Identifiers from Thomson Reuters. http://thomsonreuters.com/content/news_ideas/white_papers/financi al/legal_entity
Enjoy your conference and Auckland, home of The Registry People