1. technology and computing
2. software
3. databases

Dealing with Reality:
How to Ensure Data Quality in the
Changing Entity Identifier Landscape
June 2013
Sponsored by:
n Legal Entity Identifiers
Editor
Andrew P. Delaney
[email protected]
Editorial Contributor
Sarah Underwood
[email protected]
A-Team Group
Chief Executive Officer
Angela Wilbraham
[email protected]
President & Editor,
ReferenceDataReview.com &
Risk-Technology.net
Andrew P. Delaney
President, Americas
Pete Harris
[email protected]
Sales Director, Reference Data &
Risk Technology
Caroline Statman
[email protected]
Sales Director, Low Latency & Big Data
Martyn Hodges
[email protected]
Client Services Manager
Ron Wilbraham
[email protected]
Marketing Operations
Rachael Shaffer
[email protected]
Production Manager
Sharon Wilbraham
[email protected]
Events Coordinator
Jeri-Anne McKeon
[email protected]
Researcher
George Bailey-Kirby
Postal Address
Eastcott,
Old Salisbury Road,
Abbotts Ann,
Hampshire, SP11 7NH
+44-(0)20 8090 2055
[email protected]
www.a-teamgroup.com
A-Team Group
A-TeamGroup.com
Low Latency
Low-Latency.com
Risk Technology
Risk-Technology.net
Reference Data
ReferenceDataReview.com
Big Data
BigDataForFinance.com
ReferenceDataReview.com
Dealing with
Reality
“
The Global LEI will be a
marathon, not a sprint”
is a phrase heard more
than once during our
series of Hot Topic webinars
that’s charted the emergence
of a standard identifier for
entity data. Doubtless, it will
be heard again.
But if we’re not exactly
sprinting, we are moving
pretty swiftly. Every time I
think there’s nothing more to
say on the topic, there is –
well – more to say. With the
artifice of the March ‘launch
date’ behind us, it’s time to
deal with reality. And the reality practitioners are having to
deal with is one that’s changing rapidly.
Part of the reason has
been the emergence of a
growing band of so-called
pre-LOUs (local operating
units), which now number
nine if you include the Dutch
Chamber of Commerce.
While only two pre-LOUs
are currently issuing preLEIs (DTCC/Swift and WM
Datenservice), the number of
pre-LEIs now available tothe
marketplace is now approaching 85,000, according
to Bloomberg’s Pete Warms.
Of these, the lion’s share
(81,890) has been issued via
the DTCC/Swift’s CICI Utility,
Warms says, with the remainder (1,287 at press time)
via WM.
Warms expands: “Through
the [CICI Utility] registration
and verification process, this
industry utility issued 73,703
pre-LEIs, which are considered ‘validated’ as a result of
this verification process. The
nearly eight thousand LEIs
that make up the difference
have “Invalidated Statuses.”
Identifiers in this category
are classified as Inadequate
Sources (6,004), Conflicting
Sources (887), Duplicate LEI
(958), Pending Removal (7),
and Under Review (1,250).
Identifiers in this category
are classified as Inadequate
Sources (6,004), Conflicting
Sources (887), Duplicate LEI
(958), Pending Removal (7),
and Under Review (1,250).
Overall, the geographic
composition of issued LEIs
from CICI is as follows: US
- 46,882; UK - 4,964; Caymans - 4,403; Luxembourg
- 4,181; Canada - 2,742;
Ireland - 2,317; Australia
- 2,281; Germany - 1,501;
Netherlands - 1,184; Switzerland - 1,042.”
In this report, Bloomberg’s
Warms is joined by Stuart
Harvey of Datactics, Stephen
Engdahl of GoldenSource,
and Darren Marsh and Ivo
Bieri, both of SIX Financial,
for a discussion of what firms
should be doing now to plan
for the changing future of
entity data as it unfolds.
Andrew Delaney, Editor-inChief, A-Team Group.
2 | Thought Leadership from ReferenceDataReview
June 2013
Clean.
Consolidated.
Complete.
Making data work.
GoldenSource delivers effective data management for:
Risk Analysis • Regulatory Reporting • IBOR • Front/Mid/Back Office
Making data work for:
• Asset managers
• Hedge funds
• Private wealth
• Broker/Dealers
• Banks
• Service Providers
• …and more
www.360edm.com | [email protected]
New York: +1 (212) 798 7100 | London: +44 (0)207 422 7020
O P E N S TA N D A R D S • L I G H T W E I G H T O N D E M A N D D E L I V E RY • FA S T D E P L OY M E N T • Q U I C K R O I
n Legal Entity Identifiers
Andrew Delaney, Editor-in-Chief,
Reference Data Review
(Moderator)
ReferenceDataReview.com
A-TEAM Q&A:
Entity Identifier
Landscape
What is the current
state of play with respect to the rollout of
the Global LEI System?
Peter Warms, Head of Product
Development for Global Data and
Symbology, Bloomberg
Stuart Harvey, Director,
Datactics
Stephen Engdahl, Senior Vice
President, Product Strategy,
GoldenSource
Darren Marsh, Senior Product
Manager, SIX Financial Information
Ivo Bieri, Head Strategic Business
Development, SIX Financial
Information
Peter Warms,
Bloomberg: Bloomberg
acted early to deliver
the LEI, and associated
content, to customers.
We continue to map LEI
data, and deliver it with
Bloomberg’s data feed
products, as part of an ongoing commitment to ease
the necessary adoption of
the LEI standard. In doing
so, Bloomberg upholds a
commitment to data quality
and coverage. Bloomberg
is also determined to communicate important observations about the state and
efficiency of the system to
industry leaders and stakeholders that together will
shape future LEI protocols.
On June 19, the Regulatory Oversight Committee
(ROC) announced that it
has made “significant progress” in the establishment
of the Global LEI System
(GLEIS). In the coming
weeks, we anticipate more
clarity about the adoption
of specific standards, such
as guidelines for the establishment of the Central Operating Unit (COU). Overall,
4 | Thought Leadership from ReferenceDataReview
the announcement is
another positive indication
that global regulators are
moving forward with the
establishment of GLEIS.
Stuart Harvey, Datactics: We are moving toward
a ‘Global LEI System’ at a
slow but steady pace and
there is certainly a long
way to go yet. The last we
heard (back in May) the LEI
foundation planned to establish a board of directors
in Switzerland. The formal
selection process of the
board is not to begin until
the statutes of the global
LEI are completed. We are
currently unclear how far
we are with that process.
Stephen Engdahl,
GoldenSource: Many
decisions have been made
–the structure of registration authorities, the format
and structure of the LEI
under the ISO 17442 standard, and the additional
data about an entity which
will be stored along with
an LEI record, for example.
We’re also seeing global
participation from financial institutions, industry
service providers, and
regulators all voicing common support to achieve a
June 2013
Legal Entity Identifiers n
ReferenceDataReview.com single global LEI. This has
taken coordination across
jurisdictions, and prioritization and focus by many
different parties at the same
time – a huge achievement
for the industry.
While a lot has been
accomplished, significant
work remains to put the
global LEI into action.
Success with the LEI will
require formation of the LEI
Central Operating Unit, as
well as effective coordination throughout the “pre”
state, in which pre-LEIs
are issued by pre-LOUs.
In addition, every financial
institution must determine
how the future LEI and the
current pre-LEIs graft on
to their existing counterparty repositories and trade
reporting processes.
there are eight additional
pre-LOUs (Local Operating
Units) established globally.
These include, WM Datenservice (Germany), Irish
Stock Exchange (Ireland),
Palestine Securities Exchange (Palestine), Takasbank (Turkey), National
Settlement Depository
(Russia), National Institute
of Statistics and Economic
Studies (France), London
Stock Exchange (UK), and
the Dutch Chamber of
Commerce (Netherlands).
Only DTCC/Swift and WM
Datenservice are actively
registering pre-LEIs. The
WM Datenservice utility has
been issuing pre-LEIs since
April, and since then has issued 1,287 pre-LEIs – also
referred to as General Entity
Identifiers (GEIs).
Bieri (SIX): A number of
players have come forward
and secured their mandates, but these mandates
are still very closely tied
to OTC derivatives. While
there is clearly a lot to be
gained from transparency
in that space – both from
a risk-management and a
regulatory point of view –
we do not see a voluntary
adoption outside these
mandates.
Harvey (Datactics): A
working group is being
established to improve
co-ordination between the
pre-LOUs, and help iron out
various issues with preLEIs. The recent announcement from the CFTC that
they are willing to accept
pre-LEIs is certainly a positive step. Even though it is
a conditional offer (ESMA
must accept CICIs under its
own reporting rules), it is a
positive step nonetheless.
The mutual acceptance of
LEIs is essential if we are
to move towards a single,
unified, global system.
What is the current state
of play with respect to
so-called pre-LEIs?
Warms (Bloomberg):
In addition to the DTCC/
Swift (North America) utility,
June 2013
Engdahl (GoldenSource):
We have some, and we will
have more. The compulsion
to use an LEI is something
driven by specific regulators
each for their own jurisdiction – and each implements
their specific regulations
with their own timing requirements. During the period prior to establishment
of the LEI Central Operating Unit to administer the
official global LEI, we can
expect additional regulatory
bodies to mandate LEI (or
pre-LEI) usage, which will
lead to additional pre-LOU
bodies issuing them. This is
a developing story, and one
which financial institutions
operating globally will need
to keep a close eye on.
Bieri (SIX): Each player
follows the definitions of the
related legal mandate that
requires LEIs to be used in
a reporting, so they follow
their own time schedule. We
expect that the ones that
actually have a mandate
with clear deadlines will be
able to fulfill their role.
Engdahl (GoldenSource):
Two authorities are currently
issuing pre-LEIs. The DTCC
and SWIFT are issuing a
CFTC Interim Compliant
Identifier (CICI), and WM
Datenservice has started
issuing a GEI (General
Entity Identifier, sometimes
referred to as the German
Entity Identifier).
So far, seven more authorities have been given
the right to issue pre-LEIs
however they have not yet
Thought Leadership from ReferenceDataReview | 5
n Legal Entity Identifiers
started issuing pre-LEIs.
Harvey (Datactics): In
terms of pre-LOUs, among
the most visible in Europe
are WM Datenservice
(Germany), Irish Stock
Exchange (Ireland) and the
National Settlement Depository (Russia).
Marsh (SIX): Although no
LOUs are currently present in the APAC, it is worth
nothing that the HKMA and
SFA in Hong Kong have
stated that they intend to
adopt LEI as part of their
regulatory reporting regimes
for OTC Derivatives markets so the growing interest
exists. Furthermore, senior
Japanese representatives
within the ROC are highly
engaged in the process.
What data quality issues
are arising due to the
existence of multiple
pre-LEIs?
Warms (Bloomberg):
Duplicate LEIs is a known
issue with the current LEI
system, despite best efforts to enhance the quality
and transparency of the
process. Quality is an important subject, especially
for institutions that require
complete confidence in
the LEI system in order to
determine when, and how
much, to invest in LEIoriented system development.
The CICI utility is
designed to be an open
ReferenceDataReview.com
registration service to
promote accessibility and
participation. It enables a
corporate representative to
register his entity with the
utility at any time. Ideally
the submission results in
the issuance of a preLEI. However, this open
-registration process can
increase the potential for
duplicate LEIs - not by the
fault of the DTCC/Swift,
but because there is no
central database to check
duplicate LEI registration
records against. Once
registered, pre-LEIs are
reviewed and ‘validated’ by
the DTCC/Swift for quality
assurance purposes. After
the LEI validation process,
LEIs can be confidently
mapped to Bloomberg’s
Global ID (ID_BB_COMPANY) and distributed in
Bloomberg data feeds.
Doing this gives Bloomberg
subscribers the confidence
that Bloomberg is not distributing duplicate LEIs, or
inaccurate LEI records.
Harvey (Datactics): In
speaking to two of the
selected pre-LOUs, we
have heard one of the major
issues they are facing is
duplication. This duplication is understandable as
the pre LOUs do not share
a centralised database.
Datactics are keen to show
the capabilities of our data
quality software that could
potentially eliminate this by
helping to automate the deduplication process.
6 | Thought Leadership from ReferenceDataReview
Engdahl (GoldenSource):
It is planned that each
pre-LEI will convert into an
official global LEI at a future
point in time. During the
pre-LEI phase, the risk of
duplicate LEI assignments
(for example, two different pre-LOUs assigning
the same LEI code to two
different entities) will be
impossible because each
pre-LOU has been assigned a unique 4-character prefix for all the pre-LEI
codes they assign. This
is a simple and effective
way to avoid duplicate LEI
assignment. There is a risk,
though, that a single entity
may receive a pre-LEI from
multiple pre-LOUs. Since
there is currently no central
database of all pre-LEI
codes issued, there is no
simple means for an LOU to
perform a duplicate check
prior to issuing a pre-LEI to
an entity.
Bieri (SIX): As the mechanisms of verification and
the numbering standard
are known, each pre-LOU
should be able to control
the process on their own
database. The proof of the
pudding will be the consolidated database to be
established by the COU,
the avoidance of duplicates
due to unsolicited multiple
registrations of the same
entity, and the maintenance
efforts to keep the records
up-to-date.
How are they coordinatJune 2013
Legal Entity Identifiers n
ReferenceDataReview.com ed, and what is the migration path to the full LEI?
Warms (Bloomberg): Currently, the two active LOUs
are operating independently. The GEI (General
Entity Identifier) maintains
some additional data sets
in comparison to the CICI
Utility. DTCC has recommended operating principles for LOU’s in an attempt
to standardize basic data
input processes. We anticipate that the DTCC will
distribute a consolidated
file that includes both CICI’s
and GEI’s in the upcoming
weeks. Moreover, based
on the recent announcement from the ROC, most
importantly regarding the
mutual acceptance of preLEIs amongst pre-LOUs, it
is more than likely they will
establish consistent future
standards.
Engdahl (GoldenSource):
Common threads holding
the current decentralized
pre-LEI operations together
include the use of unique
prefixes for each pre-LOU’s
codes, adherence to the
ISO standard for the structure of pre-LEIs, and working group-level coordination
between the existing issuers of pre-LEIs. This works
as an interim state until full
central oversight is in place,
however if the number of
pre-LOU entities expands
significantly, the informal
coordination channels may
not suffice.
June 2013
Bieri (SIX): As we interpret the publications by
the ROC, the governing
body is set up among the
interested parties, and the
coordination is done via the
established communication channels. There should
not be a ‘migration’, as the
pre-LEIs already issued will
remain untouched. In the
background however, the
LOUs will have to establish
investigation channels to
sort out duplicates, handovers and transitions.
What steps should
practitioners be taking
with respect to pre-LEIs
right now?
Warms (Bloomberg):
Practitioners are taking
one of two approaches
to LEI adoption. We’ve
worked with early adopters who are, at a minimum,
storing LEIs in company
databases, if not exploring
ways to integrate the LEI
into workflow enhancements, such as know your
customer (KYC) technology,
on-boarding and corporate
actions database enhancements. On the other hand,
some organizations are just
starting the process of using the LEI and have yet to
determine how to map LEIs
to entity information, for example. Practitioners in this
set generally reach out to
service providers, such as
Bloomberg, that can assist
with the process of tagging
and mapping LEI data to
existing entity identifiers.
Harvey (Datactics): There
are obvious problems
arising with pre-LEIs, as
we mentioned earlier – the
main issue being duplication. Until a global LEI system is in place, practitioners will need to take steps
to ensure the quality and
accuracy of LEIs assigned
to their own data. Datactics recently worked with a
large UK brokerage client
to match their counterparty
data with an established
LEI database and assign
an LEI. This project was
implemented with speed
and ease, utilising Datactics’ powerful matching
engine and fuzzy matching
logic.
Engdahl (GoldenSource):
Financial institutions can
get prepared right now
through a series of distinct
steps:
1. Assessment: Counterparty information may be
stored in multiple locations
throughout a firm. To be
prepared, firms must identify and understand how
and where these repositories are maintained and
used today.
2. Standardization and
aggregation: To prepare for
effective reporting, counterparty information across
the firm must be standardized and aggregated, and
any conflicts within different repositories must be
researched and resolved.
Thought Leadership from ReferenceDataReview | 7
n Legal Entity Identifiers
Starting with the foundation
of a clean and solid entity
master will make it easier
to overlay pre-LEIs and the
LEI as they are available.
3. Sourcing the LEI: Institutions must decide what
source or sources to use to
obtain the new codes for
the records in their entity
master.
Pre-LEIs are available
freely on the web. However,
applying these pre-LEIs
to an existing customer
master presents a daunting
mapping task.
Many data vendors have
announced their plans for
making pre-LEI information
available. The easiest way
to get started with pre-LEIs
is to obtain it through an
existing data vendor feed,
though this may involve
additional products, commercial arrangements, and
mapping projects with that
vendor.
4. Registration processes:
Institutions will need to set
standards and processes
for how they verify the
existence of an LEI for each
new counterparty they bring
on board. And, when the
counterparty does not have
an LEI, they must determine who is responsible for
registering for a new LEI on
behalf of the counterparty,
and who is responsible for
maintaining it annually going forward.
5. Strategic advantage:
This step should really be
the first one, not the last.
All too often, regulatory
ReferenceDataReview.com
projects become obligatory
forced marches to compliance. But the best regulatory projects are the ones
which deliver something
back to the firm, not just to
the regulator.
In the case of the LEI,
there are many internal and
strategic benefits a financial institution can achieve
in addition to regulatory
compliance. The LEI can
contribute to better visibility
across lines of business,
a greater understanding
of an institution’s relationship with its customers
and counterparties, and
improvements to risk
management, for example.
It’s important to find those
additional benefits and
work them into the firm’s
LEI roadmap.
Bieri (SIX): For those who
need to register, it should
be pretty straightforward
– but they need to make
sure that the responsibility
for the maintenance of the
record is clearly assigned
internally after the initial
setup. For those who need
to carry the identifiers in
their databases to use it
for reporting purposes: You
need to think about whom
to connect to in order to
obtain the data in the first
place. One of your existing
vendors, a new vendor, or
potentially directly to the
COU. The important factor
is – apart from coverage
and license costs of course
– the level of automation
8 | Thought Leadership from ReferenceDataReview
that can be achieved in
mapping and matching to
your existing database(s).
There have been some
quality issues with some
of the pre-LEIs. Which
ones have been affected
and what were the
issues?
Warms (Bloomberg): Data
quality is a vital concern
for data vendors, market
practitioners and authorities
such as the ROC, DTCC,
PSPG and CES (committee
for evaluations and standards). These groups are
charged with the concerted
effort to improve the overall
coordination of the LEI
registration and issuance
process, including quality
control procedures. The
GLEIS is still very new but
its June 19 announcement
evidences the progress
made at the recent industry
meetings in Mexico City.
Even if the progress made
was to laying the foundation, or organizational
infrastructure, for the global
LEI, this is a positive outcome. Structure needs to
be in place before specific
standards can be agreed to
and disseminated.
Harvey (Datactics): It is
not just the pre-LOUs facing quality issues, indeed
the DTCC recently faced
fierce criticism of their CICI
database. A Bloomberg
Data Validator cited that the
DTCC database contained
June 2013
Legal Entity Identifiers n
ReferenceDataReview.com over 600 duplicates, making
up approximately 1% of its
total records. As discussed
earlier, the pre-LEIs face
duplication issues as they
do not share a common /
centralised database. All of
these issues will continue to
be a problem until a unified
system has been established and the LEI parameters have been defined.
Bieri (SIX): As you would
expect with a new database
– and especially a distributed one with new players
that have not traditionally
maintained a joint database – there are certainly
some growing pains, and
there will be more of those
as new regulations in other
markets that require LEIs
to be submitted go live.
We also expect to see a
number of issues once the
first wave of identifiers is up
for renewal, as corporations
face a new duty to maintain their data with their
registrar.
How are they being
resolved?
Warms (Bloomberg): The
CICI Utility allows data consumers to challenge an LEI
record and question potential errors found in LEI data
sets. This process causes
LOUs to re-validate the LEI
content, which helps insure
accuracy and accountability
on an ongoing basis.
Longer term, the ROC
has been furnished with
June 2013
many quality oriented
suggestions and enhancements by the PSPG. Once
the COU is established, we
anticipate it will act swiftly
issuing standards aimed at
improving the overall quality
of LEI content.
Bieri (SIX): Each of the
pre-LOUs that have come
forward have experience
with keeping databases upto-date, and we see them
fit to resolve the issues as
they occur. Surely the ROC
and the attached committees will help them by issuing guidelines and ensure
the dialogue between them,
in order to establish best
practice approaches.
More generally what are
next steps with respect
to adoption of the full
LEI?
Warms (Bloomberg):
In addition to establishing quality controls for LEI
content, consistency and
centralized delivery of LEI
content are also important
next steps for the industry. For example, pre-LEI
records from WM contain
different data sets than the
CICI Utility, due in part to
regional and market needs.
However, for the LEI to
garner global adoption and
support, consistent data
sets are an important prerequisite. Otherwise, data
vendors (and their customers) need to build out auxiliary data sets to accom-
modate all active pre-LOUs.
If more pre-LOUs become
active, and thus introduce
more data set diversity, the
LEI consumer then has to
maintain more and more
data sets in order to accept
content from the different
LOUs. In the absence of the
COU, as more LOUs become active, data vendors
and consumers of LEI content are forced to facilitate
data mapping processes for
multiple LOUs.
Third parties, and data
vendors, play a critical
role in the future of the LEI
adoption process since
many LEI users depend on
these authorities and vendors LEI content delivery
and integration. We would
welcome an industry initiative to establish a consolidated solution.
Bieri (SIX): We do not
believe that a ‘full LEI’ will
appear in the near future
as some have expected.
The adoption of the LEI can
be expected to follow the
path of regulation closely,
and not spread beyond
those mandates. There are
already so many directories and registers, that
from a registrant’s point of
view, you do not register
anywhere you do not have
to. The benefits of the LEI
register lies with the regulated companies that need
to use it in their authority
reporting, and potentially
for their risk monitoring.
But for the registrant, there
Thought Leadership from ReferenceDataReview | 9
n Legal Entity Identifiers
is just the burden and the
cost. The wider adoption
across many industries
will need a lot of time, or
numerous regulations to
be changed – which in the
short term will probably
cause more economic cost.
However, the longer term
business benefits are widely
recognized and firms rollout
plans will initially focus on
the immediate regulatory
requirements whilst preparing to adopt LEI across a
broader set of business
requirements once critical
mass is achieved.
A-Team research suggests that financial
institutions are investing
heavily to get their client/counterparty/entity
data in order. What are
the panelists seeing in
terms of client solutions?
Warms (Bloomberg): The
2008 financial crisis exposed the lack of transparency in the financial markets, and resulted in myriad
new regulatory guidelines
designed to enhance risk
measurement processes.
The crisis also exposed the
inadequacies of existing
data management models.
The industry is starting
to transition from spending on classic instrument
level models, to investing
in modern entity reference
data models. In these entity
reference data models, entity content resides on top
of instrument level content,
ReferenceDataReview.com
and is not combined within
instrument databases. For
larger sell-side banks, the
data model modifications
don’t stop there. Many
banks are investing in the
on-boarding, or know your
customer (KYC) processes,
and connecting these processes to entity reference
databases. As a result,
we expect that enterprise
clients will explore technology solutions that address
new regulations, with a
key focus on counter party
and risk assessment. The
latter is largely dependent
on connecting underlying
instruments to their corresponding issuing entities.
Investing in a data model
that encompasses identifier
linkages between entities
and entities to instruments
is critical.
Engdahl (GoldenSource):
Agreed. Many GoldenSource customer projects
focus on implementing
a consolidated entity/
counterparty master where
previously separate different systems might have
been in place. We’re seeing
spreadsheets being replaced with controls, quality
processes, and cross-enterprise standardization of
data. All of this is resulting
in better and cleaner entity
data – better quality – going
into the LEI implementation
process.
management and transparency across the industry
we see a number of key
content synergies emerging that are consistent
or related across several
regulations. One such area
is client/counterparty/entity
or ‘Business Entity Data’ as
a collective term.
Business entity data is a
key component in the identification and management
of risk exposure. Maintaining an accurate and
consistent view of business
entity data available across
the organization provides
the glue to connect the
disparate data sources they
hold on counterparties, clients, obligors, issuers and
the underlying issues held
in order to create a shared
single view of entity data
and associated risks across
the enterprise.
By establishing a single
holistic view, firms typically
look to achieve data consistency and meet in-house
distribution frequencies
required by critical business functions that support
the regulatory reporting
process such as harmonizing client on-boarding
processes across multiple
systems in different regions,
to reduce levels of capital
adequacy under Basel II/
III and Solvency II through
accurate identification and
risk categorization of entity
exposures.
Marsh (SIX): As regulators
focus on strengthening risk
What are the issues
around data quality for
10 | Thought Leadership from ReferenceDataReview
June 2013
Legal Entity Identifiers n
ReferenceDataReview.com this kind of data?
Warms (Bloomberg):
Hierarchies play a pivotal
role in the risk assessment
process. Banks need a
trusted source, and in some
cases, multiple sources,
for immediate and ultimate
parents, as well as obligors.
However, this hierarchical
data is not readily available. Ironically, much of the
transparency LEIs aim to
provide is actually concealed when the data set
remains obscure.
For example, if two banks
that are reporting on the
same entity but employ different data vendors for hierarchy coverage, how can
the two entries match up.
Theoretically, both banks
could be reporting different exposures on the same
entities because hierarch
information from different
vendors may vary without
guidelines that ensure consistency.
Engdahl (GoldenSource):
LEI information must be
mapped onto an institution’s existing counterparty
data set. If this mapping
effort is done manually
(rather than relying on addition of the LEI to an existing
vendor data feed used by
the firm), it is likely to be
very time consuming and
error-prone. Differences in
company names and abbreviations may require fuzzy
matching algorithms. Determining the correct level to
June 2013
apply a particular LEI within
a complex corporate hierarchy will be challenging.
Adding LEIs to existing
entity data sets will also
highlight problems within
that data set which previously went un-noticed. It
is very possible that firms
will find situations where
one entity in their database
maps to multiple LEIs. It is
also possible they will find
one LEI mapping to multiple
entities in their database.
Each case is an exception
which must be researched
and may indicate problems
with their underlying data.
The cleaner a firm’s entity
data is prior to applying the
LEI, the easier it will be to
research and address any
quality issues which arise
from adopting it.
There is also the issue
of data maintenance. LEI
registrants must certify the
information related to their
LEI is correct on an annual
basis. If not certified, existing LEIs will become stale
and need to be retired. This
requires new workflows
for registering entities, as
well as institutions who use
LEIs for reporting and other
functions, to ensure that
the information in the global
LEI system and in each
institution’s entity master is
current and correct.
Marsh (SIX): The area of
entity reference data is still
in a relative state of immaturity when compared to
securities reference data.
Acquiring and maintaining up-to-date business
entity data is not without
its challenges – manual
collection of the data,
disparate sources, lack of
standard naming conventions and address information between jurisdictions
publishing in different
languages – which often
result in inconsistency and
duplication.
Many firms still keep their
reference data in individual
silos for use by internal
credit, risk and settlement
systems, among others,
and often entity data and
securities data have been
maintained separately. A
silo approach makes it difficult to share data across
the organization and the
lack of a unique and persistent identification schema
means that institutions have
to effectively act as data
aggregators themselves,
mapping and maintaining
proprietary identifiers from
different suppliers in order
to monitor risk on an ongoing basis. This in turn can
necessitate a costly and
time-consuming manual
mapping process to identify
global exposure to various
entities, industries, regions
and asset class.
Will the LEI address the
issues firms are facing
with respect to data
quality?
Warms (Bloomberg):
Eventually, yes. The LEI is
Thought Leadership from ReferenceDataReview | 11
n Legal Entity Identifiers
still very much a work in
progress. There is increasing momentum behind
the LEI and it continues to
move in the right direction. Until the LEI structure
is in place, especially the
formation of a COU, and
the governance principles
(as recommended by the
PSPG), some quality concerns will remain.
In addition, until LEI registration exceeds a tipping
point, the LEI system will
only be a partial solution for
tracking entity information
on a global scale. In the
interim, until LEI adoption
reaches an inflection point,
data management operations should leverage the
LEI as an auxiliary entity
identifier, not a primary
entity identifier. In addition, regulatory compulsion could accelerate the
adoption process. With
the exception of CFTC
mandates, firms are mostly
encouraged to implement
the LEI, but not required to
do so.
In the coming weeks,
we anticipate more clarity
about the adoption of specific standards related to
LEI registration and maintenance, such as guidelines
for the establishment of the
ReferenceDataReview.com
COU. There are many positive indications that regulators moving forward with
the establishment of GLEIS
and global adoption of the
LEI is growing steadily.
Engdahl (GoldenSource):
Common, clear identification will always help with
data quality. The industry
has needed an LEI for a
long time. However, it also
works the other way – not
only does the LEI address
data quality, but also improving quality helps with
implementation of the LEI.
It’s the right time to get a
firm’s entity data in good
working order.
Marsh (SIX): We need to
be careful not to present
the LEI as a silver bullet
to resolve all data quality
issues in the short term
but as a unique, persistent and freely available
identifier it represents the
important foundation step
in the longer term objective
of facilitating stronger risk
management across the
industry.
As an identifier code with
simple set of reference data
attached the LEI itself does
not add direct value, however, the real benefits are
12 | Thought Leadership from ReferenceDataReview
realized once it is packaged
with the additional content
that the industry relies on
day-to-day to support their
business operations such
as broader entity hierarchies cross referenced to
proprietary identifiers and
linked to the securities master to provide transparency
of organizational structure
and risk exposure. The benefit isn’t in the code itself
but within the data that is
linked to it. As a result, the
data vendor community will
become the main distribution point for LEI within
existing data services. It is
through this process that
the LEI will proliferate internal databases and provide
a standard for data comparison both across internal
databases and also when
evaluating and implementing vendor feeds.
Once adoption reaches
critical mass LEI has the
potential to provide a
number of benefits applied
across a number of areas –
such as strengthening the
internal risk management
process by enabling aggregation of risk exposures
to a single name issuer or
group of issuers by virtue of
the securities held in an investment portfolio or fund.
June 2013