FSB Review of LEI Finds Substantial Benefits but Progress Needed
Since 2012 the Global Legal Entity Identifier (LEI) System has been used to uniquely identify over 1.4 million entities in more than 200 countries, standardising the identification of entities globally and bringing substantial regulatory benefits. However, take up beyond financial services is still slow, and further adoption is needed for the identifier to meet all of the G20’s goals for the system, finds the Financial Stability Board’s (FSB) review of the LEI’s implementation.
The LEI supports regulator’s management and analysis of large datasets, helping them track market abuse across institutions, products and jurisdictions. It makes aggregation and flexible, accurate data retrieval from multiple sources simpler, offers the ability to identify ownership and relationships and facilitates analysis of counterparty risk, interconnectedness and complex group structures. Many in the financial industry are vocally supportive of the LEI, calling on authorities to further mandate its use to increase efficiency and reduce costs.
The LEI has had particular success amongst securities and derivatives markets, with close to 100% of over-the-counter derivative trades and around 78% of securities identified with a LEI. However, LEI adoption remains low in other areas, and distribution across countries is uneven, with most use concentrated in the EU, Canada and the US. The FSB’s report also finds that coverage has not yet reached the ‘tipping point’ effect where voluntary take up would push the LEI into common use.
So, what next? The FSB highlights some obstacles to LEI implementation that need to be addressed. To expand adoption, they suggest re-examining the business model that supports LEI registration today, exploring other uses for the LEI, improving the availability and quality of relationship data and mapping to other identifiers. As readers of this newsletter are aware, XBRL International is of the view that the LEI is a key part of the future of all kinds of corporate reporting, although (as the report sets out) there is much still to do and this kind of change, at a truly global level, takes time.
One way we can see the LEI expanding is by providing greatly enhanced corporate trust through LEI-enabled digital certificates. Two weeks back we reported on how an LEI contained within a digital signature can permanently connect a business report with the organisation that published it. This is one step towards making the LEI a more significant and valuable digital asset and encouraging wider adoption and we’re excited to see further developments. Over the longer term we hope — and fully expect — to see the LEI become the core of identity in business reporting of all kinds, including within the vast majority of structured reports prepared with XBRL and Inline XBRL.
Read the report in full here.