The ManagedLEI website touches on the Global Legal Entity Identifier Foundation or GLIEF as I’ll refer to them here on out. However, the page only provides a quick summary of what is otherwise a very interesting and in-depth foundation.
If you have ever been frustrated with a non-transparency in business and especially in financial transactions, like I have, you know just how broken the system is today. Identity in transactions has meant that legal entities do not have to disclose their relationships with other entities and therefore we, as consumers or investors are not always getting a fair price. It also means that it’s easier for money to fall through the cracks and as a result, the number of fraudulent business transactions are high.
I’ve already discussed the fact that MiFID II is helping to solve some of these problems in the finance sector and explained what Legal Entity Identifiers are. But where is this all coming from? Who is driving this change?
This blog post will be all about the GLEIF’s mission, vision, history and their focus on Legal Entity Identifiers. I will also touch on how they’re enabling smarter, more cost efficient and most importantly: more trusted business transactions.
GLEIF Mission and Vision
As stated on the GLEIF website:
“The Global Legal Entity Identifier Foundation (GLEIF) enables smarter, less costly and more reliable decisions about who to do business with.”
This is done by supporting the uptake of a Legal Entity Identifier for every business and making this information public on a Global LEI Index.
It’s mission is to simplify and accelerate business transactions by providing a 360ᵒ view of the marketplace. The GLEIF’s mission is to spread the benefits of LEI’s and increase adoption in both the public and private sector.
A Short History of the GLEIF
After the financial crisis of 2008, a G20 summit was formed to look at mitigating a repeat disaster. There was widespread agreement amongst both the public and financial sectors that there was a need for a global system to recognise and identify businesses trading on the financial market.
As a result of this need being realised, the Financial Stability Board (FSB) was set-up in 2009 to monitor and make recommendations about the global financial system. In order to do this, the FSB brings together the work of the national financial authorities and international standards authorities to develop a strong regulatory and supervisory framework.
In the 2011 G20 Cannes Summit, the FSB published recommendations for a global Legal Entity Identifier which was later endorsed in the 2012 G20 in Los Cabos.
“We endorse the FSB recommendations regarding the framework for development of a global LEI system for parties to financial transactions, with a global governance framework representing the public interest. (…) We encourage global adoption of the LEI to support authorities and market participants in identifying and managing financial risks.”
The FSB then worked with the private sector to develop the Global LEI System, which we will talk about a little later in this post. In 2013, the LEI Regulatory Oversight Committee (LEI ROC) was established and a year later the FSB founded the Global Legal Entity Identifier Foundation or GLEIF and appointed its first board members thanks to the recommendations of LEI ROC.
The first GLEIF meeting was held in Zurich, Switzerland on the 26th June 2014 and a subsequent announcement was made to appoint Stephan Wolf as the GLEIF CEO.
The Current Problem
The lack of a common framework for accurate and sufficient identification for systems of a financial party does not currently exist. An example given by the FSB was the many different variations of the name for JP Morgan.
- JP Morgan
- P Morgan
- P. Morgan
An automated system would have difficulty in understanding these as the same entity which makes data aggregation and validation very difficult.
It was agreed that the way to solve this problem would be to issue a unique code to each legal entity participating on a financial market. Each entity would register and be issued with a code that would be associated with a set of reference data (name, address and hierarchical business relationships).
When this information is made available on a public database it serves both the legal entity, users and regulators. Especially in the private sector, where legal entities spend a lot of money consolidating and validating data on counterparties, a public LEI database would offer major gains to risk managers and the regulatory community.
RA summary of regulatory drivers for LEI’s are:
- improving risk management,
- better assessment of macro and micro prudential risks,
- facilitating an orderly resolution,
- minimising market abuse and
- improving overall quality and accuracy of financial data.
The information available in a Legal Entity Identifier is split into two different levels. Level 1 data provides the answer to the question: ‘who is who’. In 2017 the GLEIF expanded this to include Level 2 data, which answers the question: ‘who owns whom’.
The minimum reference data that is allowed to be included in Level 1, as defined by ISO 17442, include:
- the official name of the legal entity as recorded on official registers;
- the registered address of the legal entity;
- the country of formation;
- the ISO 3166 codes of the countries where the legal entity is represented;
- the date of issuance, the date of last modification and the date of expiry.
It is possible for an organisation to include more information than the above; this is something that can be agreed with the legal entity and the LEI issuer.
Level 2 data allows identification of the direct and ultimate parents of the legal entity and vice versa. The inclusion of this data took place in May 2017 so any LEI issued prior to that would have to have the new set of data included on renewal. LEI issuers would have had to vet the legal entity with new requirements against a third-party source.
As of mid-2018, the hierarchical structure of legal entities was measured to be included in 96% of LEIs.
For child entities applying for an LEI, the following parent meta-data will still be collected:
- [Legal] Name.
- Legal address.
- Headquarters address.
- Business register information (if applicable):
- Identification of the register.
- Registry number for the parent entity.
The GLEIF publish all LEIs into the global LEI Index and they use this to produce statistics on global LEI adoption. Here’s an example of LEI issuance by country taken from their website when writing this article.
The Global LEI System
The LEI system operates on three tiers as shown on the image below.
The GLEIF is responsible for accrediting entities who issue or are seeking to issue LEIs. They do this by making sure they meet the requirements set out in the Master Agreement.
The GLEIF’s Services
The GLEIF is tasked with:
- maintaining the public record of Legal Entity Identifiers and ensuring its operational integrity;
- ensuring that entities issuing LEIs are suitable;
- allowing unfettered access to the LEI registration data by the public;
- facilitating a framework whereby LEIs and the information in them can be challenged;
- reporting and statistics on the global LEI pool and GLEIF services;
- optimising the quality of the LEI pool; and
- publishing comprehensive information about LEI’s and the activities of the GLEIF.
A Road to Trusted Online Business Transactions
In the many conversations I’ve had with business leaders over the last year, it is becoming apparent that being able to identify a business entity in a transaction is not just something that can help the financial market and automation, it is something that is needed to solve many problems in online consumer transactions today.
The trouble with getting wider adoption of Legal Entity Identifiers is that, put simply, we’re still not at a stage where this issue is understood widely enough. We have recognised the problem of identity in financial transactions and how it has made an impact to fraud and money laundering. We know that it can help increase transparency and mitigate risk. We even know that in the future, it could help consumers make better purchasing decisions. But there is much more that can be done to spread the word and the benefits of LEIs.
A Faster Way to Legal Entity Identifiers (LEIs)
The GLEIF is very much aimed at solving that problem and spreading the word of Legal Entity Identification. That’s one of the reasons I decided to work with Ubisecure’s RapidLEI and issue Legal Entity Identifiers. I believe in the GLEIF’s mission to bring LEIs to a wider market – LEIs are not just for compliance!
But I also believe in the fast and efficient issuance of LEIs. It shouldn’t be a burden for organisations or risk managers to apply for and receive an LEI. This is why, Ubisecure have developed an easy and efficient method of registering a legal entity and issuing their LEI with the RapidLEI system.
You could register with us once, and be issued with your LEI in minutes. If you register for up to six years, you don’t even have to lift a finger unless your business entity details change. We’ll take care of the renewal and email you every year when its done.
Can you name another LEI issuer who can do all that?
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.