SIFMA CEO on ID Codes:
We're Strong Advocates of Central Control
June 19, 2012
The president and chief executive officer of the Securities Industry and Financial Markets Association Tuesday called for the creation of a strong “centralized body” to register, issue and validate identification codes that will be issued to participants in financial transactions, worldwide.
"The air traffic control function is the biggest issue that is still in play," chief executive T. Timothy Ryan Jr. said in opening remarks at the 2012 SIFMA Technology Leaders Forum and Expo at the Hilton New York.
SIFMA and 16 trade groups have recommended that The Depository Trust and Clearing Corporation and the Society for Worldwide Interbank Financial Telecommunication act as that “centralized body.” A portal operated by DTCC would take applications for 20-digit legal entity identification codes, SWIFT would issue them and DTCC would keep a central repository of valid data.
SIFMA has called this “legal entity identification” or LEI system the “linchpin” to monitoring and managing worldwide risks to financial systems, in the aftermath of the 2008 global credit criss.
The Financial Stability Board, which is trying to coordinate international efforts to create such a system, this week delivered its 35 recommendations to leaders of the G-20 industrial nations, meeting in a summit at Los Cabos, Mexico.
The FSB’s recommendations appear to support a more “federated” approach, as recommended by a group of industry consultants led by Financial Intergroup in New York.
That system would put the registration and issuance of the IDs in the hands of local authorities, in different nations. A “central operating unit” would coordinate and validate the data, to make sure it adhered to standards for the codes set by the International Organization for Standardization.
The LEI system, Ryan said, will be an “important new tool” but “we cannot support measures that disrupt market functions or increase systemic risk."
He noted that the "biggest surprise in the industry" is that there is no standard system around the globe for identifying firms that take deal with each other in stock, bond, credit risk swaps and other financial transactions.
But the FSB’s federated approach could make the creation of a single standardized system of identification difficult, Ryan said.
“Each state would own its own registrar, own its own data,’’ he said, as opposed to a central repository that would make sure all IDs are unique, clear and retrievable in a standard fashion.
Without a central authority for consistent data controls, he said, the industry will have “fragmented systems” of identifiers.
“We're strong advocates of central control,’’ he said.
“Ryan’s view is probably based upon the long-standing issues of fragmented markets caused by regulators’ having micromanaged the design of market structures,'' said Allan Grody, who leads a group of industry and global technology companies supporting the federated model proposed by the Financial Stability Board.