US Treasury Releases Plan for LEIs (Legal Entity Identifiers) | Practical Law

US Treasury Releases Plan for LEIs (Legal Entity Identifiers) | Practical Law

The Treasury Department Office of Financial Research (OFR) released plans for the development of legal entity identifiers (LEIs), which are not yet required by all US regulators, although momentum is building for universal adoption.

US Treasury Releases Plan for LEIs (Legal Entity Identifiers)

Practical Law Legal Update 2-602-5606 (Approx. 5 pages)

US Treasury Releases Plan for LEIs (Legal Entity Identifiers)

by Practical Law Finance
Published on 03 Mar 2015 • USA (National/Federal)
The Treasury Department Office of Financial Research (OFR) released plans for the development of legal entity identifiers (LEIs), which are not yet required by all US regulators, although momentum is building for universal adoption.
On February 19, 2015, the Treasury Department Office of Financial Research (OFR) released a strategic plan detailing the work it will undertake between 2015 and 2019. As part of its strategy, the OFR plans for the development and enhancement of the legal entity identifier (LEI). The LEI is a unique, 20-letter identification code associated with a legally distinct entity that engages in a financial transaction. LEIs are not yet required by all US regulators, although momentum is building for universal adoption. Transaction parties may therefore want to consider applying for an LEI.
The aim of the LEI system is to uniquely identify counterparties to financial transactions and to provide high-quality reference data (such as names, addresses and basic ownership information) for them. LEIs are designed to enhance and standardize global transactional data reporting and identification. For more background on LEIs, see Legal Update, FSB Recommendations on Global Legal Entity Identifier for Financial Markets.
With respect to LEIs, the OFR plans to:
  • Create LEIs that provide the following information:
    • the parties to the transaction;
    • identifiers for hierarchies of corporate structure to account for ownership/parent-subsidiary and affiliate relationships;
    • which parties are the owners of which instruments; and
    • which products are owned.
  • Make substantial progress in the effort to have Financial Stability Oversight Council (FSOC) member agencies and international regulators require the LEI in all new data collections.
  • Examine ways to add corporate hierarchy information to the global LEI database through the LEI Regulatory Oversight Committee.
  • Create an "identifier map" to enable research and analysis across datasets that use different identifiers.
  • Help the CFTC and other regulators improve financial standards for swap data repositories (SDRs) and develop shared taxonomies for categorizing derivatives products.
  • Make substantial progress in creating a reference database for all financial instruments with the greatest benefit and lowest cost to the public and private sectors by inviting the financial industry to suggest open-source or free-to-use components in the build-out of the database.
  • Create a basket of integrated instrument reference database tools that provide transparency into the markets.
The OFR has identified the following strategies that it plans to implement to achieve the goal:
  • Collaborate on initiatives for identifiers, derivatives standards and reference databases with the financial regulatory and financial industry communities, as well as with international agencies and standards-setting organizations.
  • Seek opportunities to lead interagency collaborative efforts to leverage and enhance existing data standards.
  • Participate with industry-focused standards-setting organizations to promote the identification, development and adoption of voluntary consensus standards.
  • Actively engage in bilateral and multilateral industry initiatives to promote the identification, development and adoption of international data standards.
The OFR will monitor progress by:
  • Initially applying metrics that assess its engagement with stakeholders and other key parties on standards-related initiatives.
  • Measuring the effect of engagement activities by using surveys or other tools as initial metrics mature.
  • Quantifying the use of LEIs by financial institutions and regulatory authorities.
The OFR's strategic plan is a means to develop and enhance the LEI, which has been required or recommended by only some financial regulators in the US and abroad. In substantial part, this financial reporting relies on voluntary implementation. The following regulators currently require the LEI in various reports submitted by the financial industry regarding bank holding companies, swap transactions, and insurance investments:
  • The Federal Reserve Board.
  • CFTC.
  • The National Association of Insurance Commissioners (NAIC).
Furthermore, SEC and the CFTC have recommended (but not required) that the LEI be included in:
  • Credit rating disclosures.
  • Money market funds' monthly submissions.
  • Private fund manager reports.
  • Futures clearing merchant (FCM) ownership reports.
Under an order issued by the CFTC in July 2014, registered entities (which include swap dealers, major swap participants (MSPs), DCMs, DCOs, SEFs and SDRs) and swap counterparties that are subject to CFTC jurisdiction may until July 2015 comply with the CFTC's final swap data recordkeeping and reporting rules by using LEIs issued by either:
  • DTCC-SWIFT.
  • Any other pre-Local Operating Unit (pre-LOU) that has been endorsed as globally acceptable by the Regulatory Oversight Committee (ROC) of the global LEI system.
Each LEI code in a jurisdiction is assigned by an LOU, which benefits from local knowledge of infrastructure, corporate organizational framework and business practices. Regulators have designated LOUs with the task of locally implementing the LEI system. They offer facilities such as local registration, validation and maintenance of reference data; protection of information that must be stored locally; and facilitation of the use of local languages and organization types.
Each jurisdiction may have a single LOU or multiple LOUs; the LOUs can be public or private, country-specific or regional. For example, in the US, the supplier of the CFTC Interim Compliant Identifier (CICI) was the first candidate to become an LOU (see Legal Update, CFTC "CICI" Identifiers Become LEIs (Legal Entity Identifiers) under Swap Data Reporting Rules).
A full list of the pre-LOUs that the ROC has endorsed as globally acceptable, including the website via which each of these pre-LOUs may be accessed, is available here.
By the end of 2014, around 330,000 LEIs had been issued to entities in nearly 190 jurisdictions. For more background and information on how to obtain an LEI, see Frequently Asked Questions: Legal Entity Identifier (LEI).