One Identifier to Rule Them All..
That is the number of LEI’s that are now in existence. We are now well on our way to seeing the LEI become the most recognized and primary identifier for all legal entities, above all other security checks.
Previously the ISIN & CUSIP were the main ISO identifiers, and recently the Association of National Numbering Agencies (ANNA) have agreed to match ISIN’s to LEI’s which is a huge step forward towards mapping out the global financial system in real time and wider acceptance of the LEI, it’s more than just one foot in the door.
According to ANNA, the regulatory body for ISINs, “The new, global initiative will map new and legacy ISINs to their corresponding LEIs. By linking the two ISO standards together, firms will be able to aggregate the data required to gain a clear view of their securities exposure within a given issuer and its related entities. Once implemented, the ISIN-to-LEI mapping table will be made freely available to all without restriction”.
You can find out more about the mapping of ISINs and LEIs here.
The LEI is so important because the financial crisis exposed a number of critical faults in the global financial and banking systems. One of the faults exposed was the issue of identifying the huge number of funds, bonds, subsidiaries etc, and nobody could tell who owned who, and what resulted was a cataclysmic mess. This is why we have such faith in the LEI becoming the single identifier of all legal entities. One centralized source of information, that contains vast amounts of easily accessible, and high quality data which can prevent this from ever happening again.
Although the LEI has had a good start, I would be lying if I said that were no more challenges to overcome and milestones to reach before this digital transformation and its potential uses are fully realized. Primarily I am speaking of the slow rates of LEI renewals. Currently, 25% of all LEI’s are marked as ‘Lapsed’. Renewals are so important to the function of the LEI because it is imperative that the data remain up-to date and current. This needs to improve.
Secondly - trust. Still largely in its infancy, the LEI has potential to become recognized as the primary global identifier for all organisations, however time will be a key factor in fostering an attitude of trust towards the LEI. Trust, that it is an accurate, airtight system and does in fact contain important, meaningful and consistently accurate data. Data that is easily accessible, current, in real-time and is an important building block of the future of FinTech.
LEI adoption rates are still relatively low to what it can be. For example, China, the worlds second largest economy currently only has 2,300 LEI’s issued. Similarly, Brazil, Russia and India are huge economies that are yet to drive forward their LEI adoption rates. This indicates that there is still a long way to go to get to universal adherence to the system outside the European Union, even in the larger emerging economies worldwide. *rolls sleeves up*
The top 5 countries by number of registered LEI’s account for a disproportionate 46.7% of the worlds LEI’s.
*LEI Ownership Statistics
It is becoming more frequent for the LEI to be mandated by regulatory bodies especially in the US, which is also serving to drive up the LEI adoption rate. For example, 3 weeks ago, the US Treasury adopted new rules with regard to the Repurchasing market that require Central Counter Parties to report LEI codes. This further solidifies its adoption as a critical component of market infrastructure.
Currently, there are on average 4,000 LEI’s being issued per week. This has fluctuated since the beginning of 2019, with the peaks and troughs in the diagram below largely caused by legislation effecting LEI issuance.
*Weekly LEI registration rates
However, companies, that are not legally requiring the LEI are also transitioning due to it’s multiple advantages including enabling financial institutions to readily meet the requisite standards of KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance requirements. The LEI can also be used to clarify ownership structures and identities in large organisations and corporations. The analytical advantage gained by way of the LEI is truly signifigant.
It is the mission of LEI Worldwide to facilitate this global mass adoption to the Legal Entity Identifier, by making them as accessible as possible to entities all over the world.
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