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The 2011 the Heads of State and Government of the G20 called on the Financial Stability Board to prepare recommendations for a global Legal Entity Identifier system to uniquely identify legally distinct entities that engage in financial transactions. The FSB established GLEIF in June 2014 with the mandate to deliver the global LEI system where users may get free of charge, high quality reference data on legal entities.
A growing number of small and large businesses are part of the global supply chain and are under increased pressure to become more transparent about their import and export transactions. Customs Authorities and Financial Intelligence Units are monitoring businesses to ensure that the import and export of goods and services and the related payments made comply with the legislation of the jurisdiction involved.
Not an easy task you might say. After all, for import and export transactions there are millions of small businesses and thousands of larger companies that are registered in over 600 national registries. The latter group presents a challenge for small businesses since the data of businesses of other jurisdictions are in general not easily or with substantial costs available for SME’s
For financial transactions, the word transparency is nearly always equated with information disclosure. The trouble is that up until now, legal entity reference data has been proprietary, siloed and non-standardized.
Put simply, businesses across the globe are in dire need of a solution. Not only to keep on the right side of the regulators, but also to be able to make smarter, less costly and more reliable decisions about who to do business with.
So, what’s the solution?
The good news is, there is a solution and progress is already well under-way to unlocking it for the benefit of all users. It exists in the form of a global Legal Entity Identifier (LEI) Index available on www.gleif.org. As a result of services offered by the Global Legal Entity Identifier Foundation (GLEIF), this is a free online source that provides open, standardized and high quality legal entity reference data with the potential to capture any entity engaging in financial transactions globally. In addition the GLEIF website is available in 14 languages of the G20 to support many businesses around the world for their import and export transactions.
The reference data represents the information on a legal entity identifiable with an LEI. The LEI itself is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization. It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions.
Why the continued focus on quality for the “Who is Who” challenge?
Without continually optimising the quality of the global LEI Index, however, the entire system would become perfunctory. And it’s one of our core responsibilities at GLEIF to keep on top of this.
In partnership with the LEI-issuing organizations, we provide in-depth knowledge of local markets and can be relied on to make available the correct information year after year.
To clarify the concept of data quality with regard to the LEI population, GLEIF has defined a set of measurable quality criteria using standards developed by ISO. These can be summarized as follows:
- Monthly data quality reports Since February 2016, GLEIF has been publishing monthly data quality reports, which summarize the results of its assessment of the level of data quality in the Global LEI System, based on a set of clearly defined quality criteria. Going forward, the GLEIF data quality management program will continue to evolve by gradually implementing previously defined quality criteria and corresponding controls.
- A central challenge facility This extends the ability for any user to trigger updates of LEI data to all interested parties.
- A central duplicate check facility This is to help the LEI issuers to ensure that any organization, which has applied for an LEI, has only one LEI and that any LEI code is only issued once.
What are the additional services GLEIF will deliver?
- Data on who owns whom Starting in May 2017, GLEIF will publish relationship data, which allows the identification of direct and ultimate parents of a legal entity and, vice versa, so that the entities owned by individual companies can be researched. By publishing data clarifying who owns whom, GLEIF will provide a unique and free of charge high quality data that makes it possible for businesses to understand how the importer or exporter fits in a group structure
- Data on who owns what In 2017 GLEIF will start with the delivery of high quality mapping services with other identification systems. GLEIF agreed with SWIFT as the Registration Authority of the ISO BIC 3166 standard to make the LEI-to-BIC service available after summer 2017.
- Progress made to date As of April 2017, more than 500,000 LEIs have been issued globally to entities based primarily in the U.S. and Europe where regulations require the use of LEIs to uniquely identify counterparties to transactions in regulatory reporting.
We expect that by 2020 we will look at a global LEI population of at least 1.5 million as a result of pending regulations in many jurisdictions.
Today, public authorities in many jurisdictions already rely on the LEI to evaluate risks and to conduct market surveillance.
The private sector opportunity
We believe that the Global LEI System has the potential to generate significant advantages not only in the regulatory space, but also for small and large businesses that are active in the import and/or export of good and services.
Businesses across the globe to date are grappling with how to develop and implement a common entity identification system that could serve as a linchpin to identify businesses engaged in import and export transactions and their bank for the payment part or the public administration such as the custom organization they have to report the transaction to.
Businesses may receive for a modest annual fee an LEI from the LEI issuer of their choice. Any importer and exporter will receive free of charge high quality data of their suppliers and customers.
Gathering and maintaining related data requires replicating efforts across the market tying up resources that could be spent more productively elsewhere.
Taking advantage of the Global LEI Index will empower organisations across the board to cut costs, simplify and accelerate operations and gain deeper insight into the global market place. The benefits for the wider business community to be generated with the Global LEI Index could grow in line with the rate of LEI adoption. So, our message to businesses around the globe is this: Get an LEI and make it work for you.
We can’t offer a complete solution to the issue of transparency just yet but we are consistently moving closer as the use of the LEI becomes more widespread. To accelerate progress, we must foster greater coherence and collaboration to promote the increased adoption and implementation of shared open data principles, standards and good practice around the world.
We will continue to focus, in cooperation with our partners in the Global LEI System, on further optimizing the quality, reliability and usability of LEI data, empowering market participants to benefit from the wealth of information available with the LEI population.
The LEI is the linchpin that connects the dots across the universe of entity identification in the digital age. We’re calling on private and public sector organizations across the globe to consider the benefits of having an LEI and take full advantage of what’s on offer.
Gerard Hartsink is Chairman of the Board of the Global Legal Entity Identifier Foundation (GLEIF) and Director of the World Trade Board. He has extensive experience in establishing global implementation strategis of among more as Chairman of CLS Bank International, New York, Chairman of the European Payments Council, Brussels and as Senior Executive Vice President of the ABN AMRO Bank Holding N.V..