July 12, 2011

The Depository Trust & Clearing Corporation (DTCC) and SWIFT (Society for Worldwide Interbank Financial Telecommunications) have been selected as the Core Issuing and Facilities Managers in a proposal sent to regulators by the Global Financial Markets Association (GFMA) that would help create a global Legal Entity Identifier (LEI) system that would help regulators and industry participants to monitor for systemic risks.

An LEI is a unique ID associated with a single legal entity allowing for consistent identification of parties to financial transactions. Currently, there is no one global standard identification system for such parties. Regulators want a global LEI system that would attach the identifier to all legal transactions.

In theory, the LEI will help regulators monitor for systemic risks to the financial system that may otherwise go unnoticed if parties are allowed to continue to use different identifiers in different regions or even in various asset classes. Industry observers note that although an LEI is needed, coordinating the effort globally will be a difficult, if not impossible, task despite good intentions.

The GFMA proposal comes after several months of work by the Trade Associations and GFMA as a first step in developing a global industry consensus on the requirements and standards for a viable, uniform and global LEI solution.

The proposal recommends the following firms take part in the LEI process:

-- Standards body: The International Organization for Standardization, i.e., ISO's new standard, ISO 17442, is recommended for use as the new, authoritative legal entity identification standard;

-- Core Issuing and Facilities Manager: The DTCC and SWIFT, along with DTCC's wholly-owned subsidiary AVOX Limited, are recommended as key partners to operate the core LEI utility as the central point for data collection, data maintenance, LEI assignment, and quality assurance;

-- Federated Registration: ANNA, through its network of local national numbering agencies (NNAs), is recommended as a key partner in the solution for registering, validating and maintaining LEIs for issuers and other relevant parties in their home markets. The NNAs are envisioned to serve as the "face" of the LEI Utility to those markets while leveraging the functionality of the centralized LEI Utility for the assignment, further validation and global distribution of LEIs.

"GFMA is pleased to have ISO, DTCC, SWIFT and ANNA as the recommended LEI solution providers," says . These groups together possess the strong scope, scale and experience necessary to meet the global financial services industry's requirements and make a global LEI solution successful," said Tim Ryan, GFMA chief executive officer in a press release. "An international standard for an LEI solution would enable regulators and individual firms to better monitor systemic risk."

ABOUT THE AUTHOR
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology.