LEI Group Seeks Input on Parent Entity Identification and Disclosure | Practical Law

LEI Group Seeks Input on Parent Entity Identification and Disclosure | Practical Law

The LEI Regulatory Oversight Committee released a consultation seeking input on the process for collecting and making publicly available certain details on the direct and ultimate parents of legal entities that use the Global LEI System.

LEI Group Seeks Input on Parent Entity Identification and Disclosure

Practical Law Legal Update w-000-5880 (Approx. 3 pages)

LEI Group Seeks Input on Parent Entity Identification and Disclosure

by Practical Law Finance
Published on 17 Sep 2015 • International
The LEI Regulatory Oversight Committee released a consultation seeking input on the process for collecting and making publicly available certain details on the direct and ultimate parents of legal entities that use the Global LEI System.
On September 7, 2015, the Legal Entity Identifier (LEI) Regulatory Oversight Committee (ROC) released a consultation seeking input on the process for collecting data on direct and ultimate parents of legal entities that use the Global LEI System (GLEIS). There are about 385,000 entities that currently hold LEIs and it is intended that the GLEIS system will continue to expand.
The data proposed to be collected in the first phase of collection would be basic “business card” data, such as official entity names and headquarter addresses. This information would be made freely available to public authorities and market participants. Increased data collection from LEI registrants would be implemented incrementally to avoid costly regulatory burdens.
The consultation:
  • Seeks to identify what information should be included in the first phase of data collection. The ROC hopes that this first phase of data collection will begin by the close of 2015 and envisions that it will include basic parent/subsidiary data, with other relationship data following in later phases. These later phases would include additional information that would ultimately create a machine-readable network of relationships for each LEI holder.
  • Suggests that the first phase of data collection should include the LEI owner’s direct and ultimate parent entities. These determinations would be made using accounting definitions since standardized accounting practices are widely used, verified by external auditors, and International Financial Reporting Standards (IFRS) and US GAAP have increasingly converged. Under these accounting standards, the “parent entity” definition is largely based on control, which can either be determined by:
    • ownership of voting rights contractual agreements; or
    • a more nuanced qualitative analysis that examines, for instance, exposure to losses.
  • Describes relationships outside of parent-subsidiary relationships that would ultimately be reportable in later phases of data collection, including, among others:
    • joint ventures;
    • non-controlling investors;
    • other related entities such as structured vehicles and funds managed by an entity; and
    • entities that satisfy certain “parent entity” definitions, but which fall outside definitions used by IFRS or US GAAP.
  • Provides for reporting by the subsidiary to facilitate data collection, combined with an option for the parent to report in certain circumstances. To the extent possible, local operating units of the GLEIS would verify relationship data.
  • Determines that the relationship data would be published in the GLEIS and therefore would be available for use by public regulators and market participants. Any information that would not be able to be published would not be collected in the first phase of data collection.
  • Suggests that parent information be required from market participants to renew LEIs, or, in the alternative, that market participants provide a reason for not identifying the parent (which reason would be made public). Valid reasons for declining to provide parent information could include that:
    • the parent company is not identifiable (diversified shareholders);
    • legal obstacles prevent providing the information; or
    • disclosure would be detrimental to the entity or the parent.
The ROC aims to create a data model that is extensible to other classes of relationships in later phases of implementation, and therefore must consider all phases of data when determining how to address the first phase.
The consultation suggests that data should allow users to trace changes in an entity’s corporate structure over time rather than simply allowing users to track static data such as name and address changes.
The consultation includes an attached questionnaire where comments should be listed. The questionnaire should be submitted to [email protected] by October 19, 2015.