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LEI - the biggest little change in history?

Sometimes little things can mean a very great deal indeed.  For people who work in the world of standards – whether for data, IT or just a plug in the wall – little things can have a massive impact.  Data standards are like that.  Changing the format of just one field can mean changing almost every application system that you run or have to work with.  Back in the early 1970s no programmer in the UK believed that the time would ever come when anyone could ever possibly pay over £99.99p per month as a National Insurance contribution.  As a result, every payroll system in the UK had to be changed in the late 1970s to allow for the impact of inflation – just to accommodate one extra digit in a field.

It looks like there is now a growing and strong acceptance that the industry needs something other than a BIC (Bank Identifier Code) to act as an identifier for legal entities.  Some five years ago there was a major industry push to create an ISO-standard International Business Entity Identifier (IBEI), but that got sat on by some organisations that wanted the world just to use the BIC, irrespective of whether it was fit for purpose as a unique business entity identifier or not.  And clearly the BIC has never been fit for that purpose.

It looks like US industry participants, regulators and legislators are forging ahead with trying to define a new Legal Entity Identifier (LEI) standard that has a much better chance of meeting the industry’s requirements, and that may become the basis for a new ISO standard.  And that could mean a change to many/most/every application system across the financial services sector internationally when it comes to areas like financial messaging between institutions. 

Just one little field to change, but...

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Comments: (3)

Keith Appleyard
Keith Appleyard - available for hire - Bromley 10 March, 2011, 09:21Be the first to give this comment the thumbs up 0 likes

In the late 1970's I was working on a Payroll System which only catered for an equivalent hourly rate of pay of £9.99 (£19,220 per annum).

Mind you, that was at Arnold Weinstock's GEC, so there were only 3 people out of 20,000 in my Division whose salary had to be done manually.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 March, 2011, 13:14Be the first to give this comment the thumbs up 0 likes

Chris: 

A small field for a programmer, but a giant record...

As its name suggests, BIC is expected to identify a bank, and it seems to do that quite well. As far as I know, BIC wasn't envisaged to identify non-banking business identities, and it should continue to serve its purpose even after IBEI/LEI come into existence.  

Y2K, the most famous/notorious of these field-related changes, illustrated that data standard change initiatives gather steam only when the doomsday is just around the corner. Unless I'm missing something, that's not the case for BIC/IBEI/LEI.

@Keith:

Your example about limitations in Payroll Systems reminds me of this interesting story in The Partners, the book about Goldman Sachs, which talks about the huge disparity in state of technology across different parts of the famous investment banking firm. Even while its trading systems could do HFT in milliseconds, its payroll system couldn't print a check/cheque above USD 10,000!   

A Finextra member
A Finextra member 10 March, 2011, 13:49Be the first to give this comment the thumbs up 0 likes

You're right of course, Ketheraman - no reason for banks to stop using BIC codes to identify banks.  But it's always best to use a standard for what it was designed, rather than as a general-purpose panacea for identifying every business entity and legal entity that exists.

It will also be interesting to see how the world of commerce responds to this initiative.  Commercial organisations have been exchanging messages electronically with each other for decades, and have developed a number of international standards to help them to meet those business needs.  It will probably be more effective if banks also take those other existing standards into account in their proposals for a new LEI standard.  Many countries already have LEI standards, so whether we need a new and different "global solution" or just one that allows each country to continue with its own system is a valid issue.

For example, there is not just one global passport authority for the world that issues each individual's passport, and in today's networked world a federated solution for identity seems to be one that best fits a lot of requirements.

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