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.