IHS Markit Adds Tool to SFTR Platform to Catch Missing LEIs

IHS Markit has expanded its solution for reporting under the Securities Financing Transaction Regulation (SFTR), which began phased implementation in April this year, with a tool for identifying Legal Entity Identifier (LEI) errors in reports.

The SFTR reporting tool now has an opt-in feature for customers that want the vendor to screen the data in each reporting field for errors. “The opt-in feature means that the client can ask us to scan the collateral message, which may be 1,000 lines long, and pick out any line that is incomplete,” Que-Phuong Dufournet-Tran, director of trading services, analytics, and regulatory affairs at IHS Markit, says.

Trade repositories will reject incorrect or incomplete reports, but IHS Markit’s tool can remove the line that would cause the issue.

Under SFTR, collateral on an asset is reported as single data blocks. For this to be accepted by a trade repository, the LEIs of the two counterparties to that collateral, as well as that of the issuer of the asset, have to be included. If the LEI of the issuer is left blank, the trade repository will reject the entire block.

The IHS Markit tool performs validations to ensure that the LEI of the issuer field is populated, that the LEI matches up to its governing ISO standard to the status of the LEI, or whether its status is up to date or not (known as “active” or “lapsed”). If any of the LEIs included in the message do not comply with the standards set by the regulation, an alert will pop up on the IHS Markit SFTR platform showing the failed validations.

Users can view those alerts on the user interface, or access them via an API.

“If an LEI is about to lapse, we will flag that information on the platform before it is reported,” Fabien Romero, SFTR product director at IHS Markit, says.

Dufournet-Tran, says that if the LEI is lapsed but shown to be pending transfer, it can still be included in the report. But if the LEI is closed or retired, that will cause a rejection message from the trade repository.

“This is much more stringent than in EMIR [European Markets Infrastructure Regulation] reporting,” she says, “Even if you have an LEI of the issuer but the status is not correct, you will get a rejection from the trade repository. Then you get a rejection for your whole collateral message. It’s all or nothing.”

The opt-in feature aims to help minimize the rejection for a whole block of the message due to a single error. “Our solution’s opt-in feature removes the erroneous security line to manage it in the exceptions queue, and then report the rest of the correct lines to the trade repository,” Dufournet-Tran says.

WatersTechnology has reported that the LEI still has a long way to go before it reaches its goal of global adoption. While the SFTR does require the LEI of the issuer of a security, many issuers in third countries may not have signed up to be issued one of the identifying codes. The European Securities and Markets Authority has recognized that LEI coverage is uneven across the world and granted reporting parties a grace period of a year during which time, reports without the LEI of third-country issuers that do not have an LEI will be accepted. However, this grace period expires in April 2021.