Why LEI should be in your vocabulary
The financial crisis in 2008 almost brought down the world’s financial system.
Congress responded to the financial crisis by implementing the most significant changes to financial regulation since the regulatory reform that followed the Great Depression. In 2010, President Obama signed into federal law The Dodd-Frank Wall Street Reform and Consumer Protection Act to help government and regulators monitor systemic risk for capital markets.
Under this act, the Office of Financial Research (OFR) is authorized to collect data from capital markets regulatory agencies and to enforce a structured data standard. It's here that the Legal Entity Identifier (LEI) gathered attention of U.S. regulators.
The global community also responded by developing a Global Legal Entity Identifier Foundation (GLEIF) as a not-for-profit organization to act in the public and private interest for the management oversight of an LEI registration system. Learn more about the GLEIF and its centralized database of LEIs and corresponding reference data, here.
What is an LEI?
An LEI is a 20-character, alphanumeric code and is given to an entity as a unique and exclusive code. This is a similar concept to a social security number given to individuals but linked to more contextual data to enrich the data.
Why is an LEI important?
Precise and accurate identification of legal entities engaged in financial transactions is important to both private markets and regulators alike.
In the private sector, the LEI is electronic data identifying counterparties to a transaction, which enables communication between electronic systems and facilitates automated digital transaction processing.
For regulators, the LEI is used to more effectively measure and monitor systemic risk in order to prevent a repeat of the 2008 financial crises. As adoption continues to grow, it will allow them to increase effectiveness of data aggregation and analysis across financial market participants—taking automatic exchanges of entity reference data global.
What countries have adopted the LEI?
Regulators around the world have embraced the LEI concept and are promoting its usage in reporting requirements and other supervisory activities. According to the OFR, at the end of 2014, approximately 330,000 LEIs had been issued to entities in nearly 190 countries.
The United States has made significant movements in the mass adoption of the LEI and has already mandated it in several reports. Recent final and proposed rules from the SEC and the Consumer Financial Protection Bureau would require the LEI to appear in swap transactions and home mortgage disclosure submissions.
How can you obtain your LEI?
LEIs can be obtained from registration agencies that have been acknowledged by the Regulatory Oversight Committee (ROC).
In the United States, the SEC mandates LEIs as the system from which security-based swap counterparties must obtain codes to identify themselves when reporting security-based swap data. To obtain its LEI, a company must acquire an LEI from The Global Market Entity Identifier Utility and pay an initial registration fee of approximately $200, followed by an annual maintenance fee of approximately $100. View a list of all ROC endorsed LEI registration agencies, here.
Make your comments on the final rule
The SEC currently has two new rules effective May 18, 2015, and a pending proposed amendment to SEC rule Reporting and Dissemination of Security-Based Swap (SBSR) that's still open for comment until May 4. Make your comments here.
About the Author
Liv Watson is Senior Director of Strategic Customer Initiatives at Workiva, with a primary focus on monitoring and evaluating new market opportunities globally. She helped found XBRL International and is one of the original developers for XBRL.