LEI’s Could Undershoot

Guest Blogger: Gary Wright MCSI, CEO, B.I.S.S. Research

LEIs (Legal Entity Identifiers) are becoming the most talked about acronym of today but could lose out if the development of the standard is limited to too narrow a focus.

In the securities market I have been on the trail of LEIs for over twenty years, first as a sell-side provider of services, after SWIFT entered the securities markets and then from the buy-side, as SWIFT failed to penetrate the investment side of the business. And now finally there is a breach in the wall of inertia and protectionism, which has confounded LEIs for generations. There is a gathering momentum as regulators push bricks out of the wall, but it’s still a little sad that the industry has to wait for regulatory intrusion to implement what quite frankly they should have done anyway.

LEIs as we all know are being created for a particular purpose from a particular reporting need, but the opportunity is oh so much more colourful than simply reporting.

The scope of LEIs must not be restricted but should become a generic global standard to enable recognition of all entities (at fund account level) for all financial transactions. It must cover all accounts operated by all types of financial services firm and all users of financial services. In this way the global markets will come closer together and financial services firms can develop their risk management systems to eliminate black holes between products or investors within different markets.

It’s important that the scope of products includes the payments industry, providing a convergence and the possibility of genuine ‘delivery verses payments’, thereby facilitating what every good settlement department has dreamed of, and has striven for decades to achieve.

I see a world where it becomes far more difficult to initiate financial crime and if it does occur it’s very quickly detected. I see a global net being created where perpetrators of financial crime, whether money laundering or fraud, simply don’t try. LEIs could be the most protective layer ever envisaged by police and regulators and be of global dimensions.

We could develop a one world order through LEIs that would provide measurement of global trends of who is buying what and where. This could be invaluable for Central Banks’ ability to detect potential areas of stress in banks, or other major investing institutions, or markets. We could see if there was over trading or a build-up of risk positions before they could adversely affect markets. Organisations and Government Treasury Agencies would be empowered with real knowledge and information and could share concerns with their international counterparts.

I can almost hear the cries of big brother and state control, but I counter this with the disasters that are currently hurting our industry and society. When financial services fails to have value in society then it’s time to tear up current practises and put in place a financial services industry that does its job; to foster growth and innovation, and provide wealth opportunities via investment, not the casino. LEIs like all standards have an intrinsic value that communes the business. Some might call this communist idea but I call it the industry and business supporting the community.

The danger is that LEIs will be restricted by committees and people without vision. A head down and plodding mentality is not what is required with this initiative. Rather a bold acceleration of LEIs planned for global role out. In this case the federated global ownership and licence of the identity code has to be a priority.

In my mind’s eye I see LEIs as a model of the Internet, where in the ISP role, you would have SWIFT and the DTCC and others that have a business model that includes issuing codes. Under this model the existing data management industry architecture is retained. However, these firms are provided with the opportunity to develop value added services that give the buyer more choice.

But, I do have really grave concerns with the way standards are traditionally managed within the financial services industry that LEI will in fact undershoot its potential, kissing goodbye to a fantastic opportunity for the global financial markets. Mostly my concerns are that LEIs are being driven by regulators and they are not the most imaginative people in business. The financial services industry must wake up and see the full potential of LEIs and seize the day.

I simply cannot stand waste and over decades I have seen the financial markets be extremely wasteful. I just hope that in this climate of an economic dark age where financial markets have imploded that finally people of vision will emerge and LEIs will hit the bull’s eye.

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