Legal Entity Identifiers (LEI) is one of the very best global industry standard projects undertaken since ISO15022. It has widespread benefits way beyond the initial focus and could bring forth a new age of efficiencies in financial services previously only
really a dream.
However, the dream could very easily develop into a nightmare if the Financial
Stability Board (FSB) is allowed to consign the project into an almost endless
series of international Government agreements and almost worse regulatory
At a CFSI (Centre for the Study of Financial Innovation) round table recently packed to the rafters with people representing the great and good from financial services suppliers and regulated financial services firms, the presentations and debate got badly
bogged down in legislative red tape and a timid focus towards implementation.
I think because LEI has managed to gain Government and Treasury/Regulatory buy in, to tackle the complexities of risk management and regulatory reporting (which should not be belittled, but somewhat devalues the full scope of the benefits of LEI) it has
failed to gain the attention of the whole financial services industry. This has been evidenced during recent months, with an almost universal disinterest, lack of knowledge and understanding by investing institutions that is only marginally better, in sell-side
firms. It is entirely due to the very narrow focus on the benefits of LEI and the complete lack of engagement of business operations across the financial services landscape.
For many, LEI just looks like a change in client on boarding and thus the objectives of risks management and reporting have been entirely missed. Why? Would be a question I would put to the FSB. For others it looks like a simple standard that will probably
never materialise. Indeed one delegate at the roundtable said to me afterwards "It will be just like GSTPA."This causes me great concern, as I believe LEI is one of the greatest standards projects ever devised, which will have positive rewards for firms and
Its scope includes vastly improved Anti- Money Laundering, improved STP across industry, reduction of operational risks, reduction of operational costs, legacy system functionality replacement or redundancy, rationalised data management, improved reporting
and improved risk management.
The FSB are missing the point! I give the FSB enormous credit for the work already achieved and the speed to which the initial stages have been accomplished. However, I charge the FSB with being too narrow in scope and
for an almost complete lack of marketing of the benefits of LEI to the complete
range of financial services firms on both buy and sell-side.
Financial service firms do not escape my concern either. I charge firms with not engaging in LEI to date, in the numbers that should and for allowing the FSB and others to lead the LEI project from a regulatory and legislative process.
LEIs are all about business and operational efficiency, as much if not more, than
risk and reporting management. LEIs must be industry led and driven. If the
industry engages on the scale it should, the overall changes to international
market operations and the capability of financial services firms to manage their
business and offer greater services to investors will arrive early. Otherwise
the way it's going it will take five years and more. A timescale freely
discussed at the round table.
The LEI project should be in play in virtually all markets within two years if the industry takes up the challenge and all firms demand LEIs and implement them.
The technology to implement LEIs is childlike and probably already in situ within most firms. The cost of implementation is miniscule compared to the benefits and savings that will quickly accrue.
I find the LEI project to date both encouraging in that it's started and will eventually achieve the goals I have outlined, but enormously frustrating that it could happen much sooner and have dynamic impacts across international markets. However, that assumes
we have the people in financial services that see the big picture and have the courage to act.