An interesting development in the financial world of data standards. The Financial Stability Board or FSB has promoted the LEI ROC to also be the governance body for Unique Transaction Identifiers (UTIs) and Unique Product Identifiers (UPIs).
This is pretty significant move since the FSB is working really hard to create a global standard for payment transactions that will reduce financial crime and make it easier for organisations to handle cross-border transactions.
The LEI ROC is already responsible for the governance standards of Legal Entity Identifiers and this added role wouldn’t involve a whole new direction for the body, it would simply allow for a holistic approach to governance for all the identifier attributes associated with the payment industry and many of the new regulations that come with it including EMIR and MiFID II.
Let’s dive in to this topic and get more acquainted with some of the terms.
What is a Unique Product Identifier (UPI)?
The UPI is an OTC derivative data element that characterises the product involved in an OTC derivative trade. These trades or transactions are required to be reported to a trade repository. It has been noted that a UPI may have some other uses internally but for now, the sole purpose is for reporting.
The UPI Technical Guidance has a vision where a unique UPI code would be assigned to each OTC derivative product and map out a set of reference data elements, similar to the way a payment message is categorised under ISO 20022.
The collection of reference data elements and their values for each product would be collected into the UPI Reference Data Library and would be administered by UPI Service Providers.
What is the Unique Transaction Identifier (UTI)?
The UTI code uniquely identifies a particular OTC derivative transaction reported to a trade repository. Having a UTI for each transaction minimises the risk of duplicating transactions by facilitating global aggregation of data.
The UTI Technical Guidance covers the circumstances in which a UTI should be used and sets out what events would cause a new UTI to need to be used as well as defining which entity should be responsible for generating a UTI. Guidance on UTI structure and format is also included.
Background on the Financial Stability Board’s Work
Different regions report on OTC derivatives in different ways and to different trade repositories. Jurisdictions have different trade repositories and some allow more than one for reporting. Having a global view of OTC trade derivatives is an important part of the work the FSB is doing to ensure transparency in trade reporting.
I’ve written before about the need for Legal Entity Identifiers for aggregating and harmonising data to fight financial crime and create a globally recognised format across different jurisdictions and systems or technologies. The same work is being done here for OTC derivatives.
In fact, the FSB stated in September 2014:
“it is critical for any aggregation option that the work on standardisation and harmonisation of important data elements be completed, including in particular through the global introduction of the Legal Entity Identifier (LEI), and the creation of a Unique Transaction Identifier (UTI) and Unique Product Identifier (UPI).”
These elements all have a place and work together to create succinct and transparent trade reporting databases. LEI for entity identification. UTI for transaction identification. UPI for product identification.
The FSB determined that the UPI Code and reference data elements should be set as an international data standard, more specifically an ISO. Without such a standard, there is an increased risk of intentional or unintentional diversion of adoption or incompatible implementation of the adoption of UPI codes. ISO standards would allow for a machine readable format to create a uniform global language.
An ISO would also allow agreed-upon definitions in an open data format suitable of supporting multiple messaging formats. Common consensus among industry stakeholders is key.
Designation of a Single Governance Body
In coordination with the CPMI and IOSCO, who work together to enhance coordination of standard and policy development and implementation, regarding clearing, settlement and reporting arrangements worldwide, the FSB identified the LEI ROC as best positioned international governance body or IGB. This is provided that the LEI ROC make adjustments to its existing governance to make it fit for purpose.
The FSB outline six reasons for this.
- LEI ROC principles are equivalent to the ones identified in the UTI governance conclusions report.
- LEI ROC already has members with the skills and experience to deliver the oversight of UTI and UPI.
- The governance functions that LEI ROC carries out for the LEI are the same as would be needed for the UTI and UPI.
- All of the codes are related. LEI is the entity identification while UTI is the identification of the transaction and UPI is the identification of the product.
- The response to public consultations suggest that people want a single governing body to avoid proliferation of bodies and to create a lean governance over the data.
- Appointing the LEI ROC means adapting an organisation to increase load. This saves time and money over creating a whole new governing body.
What’s Next for the Financial Industry
The financial industry is having a global shakeup. We can’t treat financial transactions in their jurisdictional silos anymore. We must begin to break down these regional borders and start to create a common language for payment transactions so that we can fight global fraud and make risk management, onboarding and compliance for financial institutions faster, less costly and more efficient.
Everybody benefits from a global language for payments – except the criminals that is. So, I’m excited that LEI ROC now has a more holistic governance of identifiers and I look forward to seeing the positive effects of this decision from the FSB trickle into the payments industry and global data standards.
Cristina is an experienced professional with a diverse career that has played to her strengths as a pragmatic, multilingual manager and educator with a passion for building trust through clarity and communication. Founding ManagedLEI was a natural step for Cristina as an intrepid entrepreneur and under the Trusted Identity banner she has many exciting plans for the future of ManagedLEI and it’s anticipated associated financial and digital security products and services.