ESRB recommends changing LEI business model for wider adoption

At the global level, the LEI has been given the important role of unequivocally identifying legal entities involved in financial transactions. The LEI is useful to regulators and other authorities for evaluating systemic risk (particularly in times of crises such as the current coronavirus (COVID-19) pandemic), conducting market surveillance and enforcement, supervising market participants, implementing resolution decisions, preparing high quality financial data and undertaking other public functions.

Other advantages are also available to the wider financial industry, non-financial industry and academics. The LEI allows the private sector to foster improved risk management, increased operational efficiency and more accurate calculation of exposures, as well as addressing other needs. The LEI has benefits over other identifiers that currently exist at national or regional level.

The global nature of the LEI is important because (i) trade and financial streams do not stop at the border of the European Union and (ii) many European entities are part of, or otherwise directly connected to, entities in other parts of the world. Properly identifying (parties within) such group structures is only possible with a global identifier. Therefore, the LEI is best suited to the purpose of monitoring financial stability.

Given these potential advantages, LEI coverage is currently not wide enough, especially for non-financial companies. It is therefore necessary to further promote the use of the LEI. The business model of the LEI in its current form, and notably the existence of fees for obtaining and renewing an LEI and the level of such fees, is one of the main reasons why its wider adoption has been limited. Therefore, alternative business models need to be considered. These would have the aim of offering entities an LEI (and allowing them to renew it) free of charge, or at least at significantly lower cost, and of addressing the challenges raised by the requirement for its annual renewal.

Legislative requirements for the use of the LEI have already provided a stimulus for its greater uptake. However, such ambitions cannot be fulfilled without considering a role for Member States’ registers or banks as validation agents. In addition, a number of other challenges exist which affect, to a greater or lesser degree, the global uptake of the LEI. While reviewing the business model of the LEI could address some of these challenges, other actions may also be necessary.

Read the full report

Related Posts

Previous Post
IOSCO publishes AI/ML guidance for intermediaries and asset managers
Next Post
FICC launches Sponsored GC service, executes first triparty repo trades

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account