SIFMA 2012: Identifiers Linchpin to Managing Worldwide Risks
May 2, 2012
Legal entity identifiers will be the foundation on which management of risks to the global financial system will be managed and regulated, SIFMA executive vice president Randy Snook.
Such identifiers, expected to be 20 digits in length with two additional digits to act as check codes, are intended to be a worldwide standard for identifying all parties to financial contracts.
“We’ve taken the lead in developing a framework for a globally consistent legal entity identifier system,’’ Snook said in remarks opening the first day of the Securities Industry and Financial Markets Association 2012 Operations Conference and Exhibit. “This is the lynchpin that will enable systemic risk regulation to be effective. “
In July, the Securities Industry and Financial Markets Association and 16 other trade associations on Monday said they selected the Depository Trust & Clearing Corp, Society for Worldwide Interbank Financial Telecommunications and Association of National Numbering Agencies as a “dream team” to create, register and distribute the legal entity identifiers otherwise known as LEIs.
Under the proposal, DTCC and SWIFT would operate the core LEI utility.
SWIFT would serve as the issuing and registration authority for the new global LEIs. DTCC would use a subsidiary called Avox as the facilities manager to collect and cleanse all the background information on the entities identified.
The new identifiers will follow the International Organization for Standardization’s new message format known as ISO 17442.
The identifiers will help financial firms better track who they are carrying out transactions with and what their exposures, monetarily, might be to a given entity. The identifiers are designed to eliminate duplicative symbologies for identifying parties; and, to better identify parent companies of different entities. This is to prevent the kind of scramble that the industry went through in 2008, when Lehman Brothers failed.
Snook said SIFMA has led a comprehensive “solicitation of interest” process to identify “solution providers” among hardware, software and services firms.
And global regulators “have a roadmap on how an LEI system could be structured and delivered,’’ he said.
Snook said the LEI initiative could help “inform” the Securities and Exchange Commission’s efforts, for instance, to create a consolidated audit trail of all securities transactions, in real time.
In the United States, the LEI standard is to be set by the U.S. Treasury's Office of Financial Research. Internationally, a Financial Stability Board has been established to coordinate work of national financial authorities and international standard setting bodies.
The FSB is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
The process for identifying legal entities under the new format is expected to start in June.
The involvement of various regulators represents a “balance of global and national interest,’’ said Stephen C. Daffron, Global Head of Operations, Technology and Data Morgan Stanley & Co., in remarks that followed those of Snook.