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By Stephen Joyce
June 10— Financial industry representatives and government officials June 10 acknowledged the benefits of legal entity identifiers—LEIs—but disagreed on how best to increase adoption of the tool.
An LEI is a unique alphanumeric code assigned to entities that standardizes how transaction counterparties are identified. LEI proponents claim the identifiers can help regulators track systemic risk and assist financial firms lower compliance costs.
Both industry and government speakers at an LEI conference in New York endorsed increased adoption of the identifier, but disagreed on how to bring about that result.
“I think it's time for industry to help accelerate the growth of the standard,” Securities and Exchange Commissioner Kara Stein told the conference. “The regulators have provided the initial momentum and mandated the LEI in a number of rules. However, now it's time to pass the baton to you, to accelerate the incorporation and acceptance of the LEI in financial transactions around the world,” she said.
Industry representatives on the other hand, including some from the largest U.S. banks, said at the conference that regulators should be drivers for adoption, in part by mandating the use of LEIs in regulations.
“The only way for the global LEI system to be 100 percent effective is for universal adoption across the globe, and it is now up to regulators to move the LEI forward by mandating its use in the home regions,” Global Financial Markets Association Executive Director David Strongin said at the conference.
Commodity Futures Trading Commission swaps reporting regulations require the use of the identifiers, and SEC rules proposed April 29 would require the use of LEIs in security-based swaps transactions.
“I will work to ensure the LEI is appropriately included in every SEC rule where a legal entity needs to be identified,” Stein said.
Since 2010, more than 370,000 entities in 191 countries have adopted an LEI, including more than 87,000 legal entities in the U.S., according to Securities Industry and Financial Markets Association data.
Matthew Reed, LEI regulatory oversight committee chairman at the Treasury Department's Office of Financial Research, told the conference while his unit is using the LEI, “we are not using it as much as we'd like to. And the reason is that there has not been broad adoption with the large financial institutions.” Large banks should work to push the LEI concept down to their subsidiaries and affiliates, he said.
Industry representatives, including Investco Ltd. counsel Theresa Brunsman, said that there are extant questions about which entities should be assigned LEIs, including whether the identifiers should be assigned to individual traders or only the legal entity employing them.
The conference was sponsored by the GFMA, the Depository Trust & Clearing Corp., the Society for Worldwide Interbank Financial Telecommunications and the Global Legal Entity Identifier Foundation, which was created to act in the public and private interest as the operational arm of the Legal Entity Identifier system
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