According to Wikipedia, a Legal Entity Identification (LEI) is defined as: A universal standard for identifying all parties to financial contracts. It is a new standard to be established by the U.S. Treasury – Office of Financial Research. It is a key element in the broader effort to understand and monitor systemic risk. Its creation will likely have exceptionally broad impact throughout the financial markets at a very fundamental level.
As stated in the development notice published in the Federal Register, “The scope of the reference data provided for each LEI issued should be sufficient to verify that users have correctly identified an entity and should include at a minimum the following information for each Identifier:”
- Electronic address
- Legal status
Over the past few months I’ve been hearing a lot about global LEI’s. This term has been flung around recent industry events and throughout the financial publications. But now I’m wondering…Was I the only person who didn’t know what an LEI was until recently?
Whether I was or not, over the past few weeks I’ve been trying to pay close attention to LEI’s and have since learned they are important within the corporate actions space and will make identification and tracking easier. Global LEI’s were generated out of Dodd-Frank (what isn’t lately?) and sprung from a need for consistent global standards for entries in broader financial markets. The entity also answers a need to drive systemic risk reporting and calls for better processes when dealing with systemic risk.
But generally, word on the street is that LEI’s are going to create a lot of tedious work. To back this thought up, at Inside Reference Data’s recent North American Financial Summit in May, panelists discussed it and will take manual processes to identify all entities and implement on a global scale. However, this manual work might be worth it! I recently came across an article in Inside Reference Data that touched upon the benefit of LEI’s. Within the piece it mentioned that an LEI will enable firms to track an entity through its full lifecycle. A global LEI and industry standards will make tracking much easier, leading to better data tracking in a timely manner, which is a big need/want for firms.
All-in-all, I’m excited to hear more on this topic in the coming months. Especially at our upcoming 5th Annual Corporate Actions Processing Conference in October where I’m sure LEI’s will be a highlighted topic.
But what do you think… Are global LEI’s going to change the face of corporate actions?