National Identifiers Less Effective Than International Identifiers
Regulators in many jurisdictions have mandated the use of Legal Entity Identifiers (LEI) to increase transparency and reduce risks in financial markets – however, the question of identity at a national level, and outside of the finance sector, can be complex and inefficient.
The LEI ROC (Regulatory Oversight Committee) progress report recommended that individual jurisdictions overcome the difficulties presented by the simultaneous existence of several domestic identity mechanisms by adopting a LEI strategy – which would “allow countries to leverage the infrastructure developed by the [Global LEI System].”
A joint GLEIF and Data Foundation report released this week explores how LEI adoption by US federal agencies could streamline entity identification and produce benefits within and beyond financial markets.
The US federal system currently uses fifty different entity identification systems, all of which are separate and incompatible with each other, making entity identification a significant challenge for many federal agencies’ missions. The convoluted system presents significant difficulties in matching entities and properly assigning legal responsibility. Not only is this system convoluted domestically, but by keeping identifiers national the widespread benefits of international identifiers can’t be accessed.
This report offers lessons to be learnt outside of the US – in fact anywhere where public authorities rely on a multitude of identification regimes could benefit from LEI adoption. The LEI responds to the critical need for a universal system of identifying entities across markets, products and regions. Widespread LEI adoption would improve interoperability and interconnectedness in any country.
In a business reporting context, that means exploring the benefits that the LEI brings in terms of comparability, comparison and certainty in corporate reporting, as well as accurate counter-party and related party disclosures. For governments, it could mean new certainty in contracting, grants, supplier management and budget management.
The report is here.