FSB’s Knot touts LEI’s role in monitoring risk, improving data quality

In line with the G20 recommendations, the Financial Stability Board is a strong supporter for a broader uptake of the LEI. We see many benefits not just from a regulatory perspective. The LEI has helped to make the financial system safer, and authorities can use it for many different regulatory purposes, said Klaas Knot, vice chair of the FSB and president of Netherlands central bank, in a recent speech.

They can for example use the LEI to monitor financial risk, to keep track of financial entities’ aggregate risk exposure, for resolution planning. A good example is embedding the LEI in the data on derivative contracts reported by trade repositories. This is very helpful in giving supervisors a clear picture of what is going on.

The LEI has also led to many improvements in the quality of data, and therefore in the quality of data analysis. This opens up possibilities for research and data aggregation. It also improves the accuracy of data reporting, and makes data more internationally comparable. The LEI is now being used in international stress tests. It is invaluable in helping to understand interconnectedness. It has improved our understanding of the build-up of risk across multiple jurisdictions.

Looking ahead, the LEI will play an increasingly important role in anti-money laundering processes at a time when banks in Europe are investing heavily in ways to combat illegal money flows.

The FSB will work with standard-setting and industry bodies to facilitate LEI adoption. As well as group entities and major counterparties of global financial institutions, the LEI should also be adopted by CCPs’ clearing members to support the timely analysis of risk exposures and interdependencies. The FSB, working with other standard setters and the industry, will also promote the inclusion of LEI in payment messages. It will also consider the benefits of the LEI in cross-border payments. The implementation of the ISO 20022 standard will be a major step forward in this respect.

Read the full speech

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