Tag Archives: legal entity identifier

LEI – Let’s execute it (well)

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LEI, and variations thereof, have been discussed and debated across the industry for many years. It’s now time for the industry to get moving and take the proposed standards from the ivory towers of Brussels and board meeting agendas across the globe to an executable standard that will in practical terms help the industry get a better handle on counterparty risk.

The good news is that the Financial Stability Board (FSB) has already committed to this by assembling an LEI Industry Advisory Panel. The even better news is that the FSB has included within this group a broader pool of market participants so that operational, data management and security, funding and implementation experts will be joining regulation and compliance professionals to ensure the most effective and efficient LEI solution is established. At Asset Control we find the broad remit of the Advisory Panel extremely encouraging as we believe the need to involve those already fighting the daily battle to understand counterparty risk is vital for LEI to have a shot at being successful.

The number of factors the Advisory Panel must consider when setting the standards, implementation timescales and measurement methodologies could be overwhelming.  A clear and consistent framework that covers the practical implications across the whole investment management transaction lifecycle is required. Remembering the law of unintended consequences will also be key – for example, analysing how might the proposed standards effect commissions, soft dollar reporting or omnibus account structures to name just a few…?

It’s clear there is a pressing need to get LEI right, if not it will simply become just another number for the industry to contend with. The FSB and the Advisory Panel have given themselves the best possible chances of doing so by calling on expertise from a broad range of industry professionals. It must ensure all of the above areas are considered appropriately and in combination with one another to stay on the right track.

We look forward to the workshop in March to learn more about the Advisory Panel’s progress in securing the future of what has become a fundamental industry standard.

Taking a consolidated view of counterparty risk

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News of the huge loss as a result of unauthorized trading at UBS this week immediately impacted everyone holding positions with the firm, and  has placed the need for a single common legal entity identifier (LEI) beyond debate. For traders, their clients and regulators, an immediate,  consolidated view of counterparty risk across asset classes, desks and geographies is now a bare necessity.

LEI standards are being developed to replace the intricate patchwork of counterparties and ownership structures that currently comprise each transaction. But, introducing standards on a global basis across the financial services sector has never been easy and discussions on what the impact would be from a practical perspective continue to vex the data management industry.

Nobody yet knows what the final LEI standards will look like and how they will be implemented in practice. One thing that is certain however, is that standardization around legal entities will create a huge data management headache for firms running off creaky proprietary systems. Firms simply cannot afford to try and accommodate the onslaught of regulatory change, of which LEI is only one, from what is, essentially, a standing start.

Indeed, LEI isn’t just another box to tick on an audit or compliance form; it goes right to the heart of a firm’s counterparty risk management and, for fear of sounding melodramatic, being able to respond rapidly is essential to minimize losses, or even ensure survival.

Getting your house in order and putting the right system in place now is essential. Markets move too quickly for firms to respond via manual processes, and spreadsheets alone will be left behind. Moreover,  If you invest in the infrastructure to spot these issues, and take appropriate action quickly, the shape, size and format of LEI won’t be a cause for concern, which leaves you able to focus on even more complex regulatory requirements that continue to cloud the horizon.