Following the 2008 financial crisis, regulators and industry participants agreed on the need to develop a global solution that allows transactions to be tracked across financial markets and multiple jurisdictions.
Policymakers and stakeholders around the globe collaborated to address the challenges and potential obstacles of transforming the idea into a reality which led to the creation of key elements of the global legal entity identifier (GLEI) system. In late July 2013, the Regulatory Oversight Committee (ROC), the global group of regulators established by the Group of 20 (G20) and the Financial Stability Board (FSB) to oversee development of the GLEI system, published requirements for Local Operating Units (LOUs). Meeting these requirements would enable the identifiers issued by LOUs to become globally acceptable for transaction reporting to the 55 global regulators that are members of the ROC. Ultimately, this action recognizes these LOUs as pre-LOUs within the GLEIS system.
The creation of a pre-LEI by an authorized pre-LOU will make the entities involved in derivatives transactions consistently identifiable to regulators and other financial institutions. Market participants will not only have a clearer and more consolidated view of their interconnections and risks, but they will also benefit from reduced costs for collecting, and aggregating data, and reporting that data to regulators.
Assigning legal entities engaged in financial transactions a unique identifier affords more efficient tracking of counterparties to trades, streamlines processing capabilities and improves risk management. Trade repositories, mandated through the European Market Infrastructure Regulation (EMIR) in Europe and the Dodd-Frank Act in the U.S., will make sure that transaction data is captured across all derivatives.
While great progress has been made in implementing a GLEIS system, time is running short for market participants who are dealing with derivative to obtain and register their LEI. The deadline for EMIR reporting – February 12, 2014 – is quickly approaching. Every entity dealing in derivatives transactions whether a bank, a fund manager or a corporation, needs to have an LEI to be able to report.
The use of a GLEI system will provide a much-needed level of consistency to aggregate trade information globally, serving as a key pillar of risk management for regulators and market participants alike.