Just one year ago you were probably aware of ISINs, BICs and/or SWIFT codes. But LEI, USI or UPI would probably have elicited a mere shrug. In the regulated world of OTC derivatives, these acronyms are the foundation for stringent and consistent regulatory oversight.
The Dodd-Frank Act mandated the creation of the Office of Financial Research (OFR) with the task to collect data from financial market participants to allow for enhanced visibility and transparency of a highly interconnected global market. The concept of a legal entity identifier (LEI) was adopted to facilitate this task by consistently identifying parties to financial transactions.
Some parties may be frustrated with another identifier having to go into the system, but let’s take a look at the design and proposed governance to better understand the benefits. Based on the ISO standard 17442, the LEI is a ‘non-speaking’ 20-digit alphanumeric identifier governed by a three-tiered structure of Regulatory Oversight Committee, Global Operating Unit and Local Operating Unit. It is a commonly accepted standard for the unique identification of financial counterparties. According to Tim Lind, head of legal entity and corporate actions at Thomson Reuters, he has “never had a conversation with customers – with anyone in the market – who said this was a dumb idea.”