Industry Awaits Swift’s BIC LEI Plans as OFR’s Consultation Deadline Looms

The Swift board’s December decision to approve an initiative to propose the BIC standard as the new global industry standard for legal entity identification (LEI) is expected to have a significant impact on the consultation period for the Department of the US Treasury’s Office of Financial Research (OFR), according to market participants.

The industry has until January 31 to give feedback on the OFR’s “Statement on Legal Entity Identification for Financial Contracts,” a call for a universal system for identifying legal entities in the industry.

The OFR’s statement specifies the chosen identifier would have to be “based on a standard developed and maintained via an international voluntary consensus standards body,” as well as “where possible be compatible with existing systems, work across various platforms and not conflict with other numbering or identification schemes.” It is now up to the industry to respond to this.

Swift and the progress of the BIC, one of the main contenders for becoming the chosen entity identifier, has been under tight scrutiny by the industry.
The Swift initiative to extend the scope of the BIC, which was approved by the board in 2009, was dependent on getting the December board approval to continue. The next step the industry is awaiting now is more details on Swift’s plans. Still, the board approval means BIC supporters are expected to highlight its benefits in their responses to the OFR, as it is now clear the extension work will continue.

In fact, during 2010 many LEI-oriented discussions revolved around whether the Swift board would choose to proceed with the BIC as a viable option to take on the entity identifier role, and experts claimed the industry would be in a wait-and-see mode until the numbering agency of the identifier made a move.

Now that this approval has been granted, there are seen to be two ISO options in the running—the BIC and the Issuer Guarantor Identifier (IGI), as well as other proposals from standards organizations, such as GS1. The OFR’s paper called for the industry to decide what identifier would be ideal for the LEI role, and market practitioners are now encouraged to give their views.

London-based Richard Newbury, market development manager, SIX Telekurs, says: “It will be interesting to see whether the OFR is able to find an entity that meets every single one of the criteria stated in their recent statement. Some of the requirements make it sound as though the BIC/IGI may be a good fit.... This would be in line with what Cesr is recommending in Europe.”

Washington, DC-based Mike Atkin, managing director at the EDM Council, says: “Firms will need to do internal co-ordination to identify any operational concerns about either option. If the industry doesn’t support either of the ISO options, the door is open for discussion of an alternative.”

Collaboration between industry experts is also ongoing. To ensure there is a co-ordinated global process enabling financial institutions to pick the standard they think is most appropriate, industry bodies are looking to work alongside each other to facilitate a global discussion.

“We are pushing for a single co-ordinated conversation. We are meeting with Sifma on a regular basis, and have now agreed to work together,” says Atkin, adding that the Council also plans to involve other industry groups, including ISTIC, EFAMA, JWG and Swift in the conversations.

In addition, the Council plans to hold a meeting with the regulators to explain the choice and to make sure it meets regulatory requirements once a final identifier is chosen.

London-based PJ Di Giammarino, CEO at think tank JWG, said the 10 firms present at the Customer Data Management Group (CDMG) meeting in London in December, a group that aims to set standards for financial institutions’ compliance with regulatory requirements for customer data, unanimously decided they want to take an active role in the LEI discussions.

“Discussions revolved around to what extent participants saw the OFR’s efforts as an issue they want to weigh in on from an international perspective,” explains Di Giammarino.

Meanwhile, as the January 31 deadline to respond to the OFR’s document approaches, industry discussions have also stressed that there are areas of the OFR statement that require further clarification.

Costs have been highlighted as one of these areas. The OFR document states that the security and reliability of all IT systems involved in identifier issuance and database maintenance and publication must meet or exceed industry standards for real-time, high availability, and “identifiers must be available to the

public without fees for storage, access, cross-referencing or redistribution.”

Frankfurt-based Rudolf Siebel, managing director, head of market and service, at German investment fund and asset management industry group BVI Bundesverband Investment und Asset Management, says while he thinks costs will not be an issue, clarification on what “without fees” referred to in the document should be specified to avoid confusion. “We welcome the recognition that the entity [identifier issuance] itself should be not for profit—cost recovery base operation—but there needs [to be] more clarification [on the fact that there will be] no fees for the end-users,” says Siebel.

As it is now, the notion of no fees for end-users does not imply no administrative fees that would have to include license fees or API rights. “Those rights would have to be relinquished or a loyalty-free license has to be offered to any user of such numbers,” explained Siebel.

Frankfurt-based Francis Gross, head of division, external statistics at the European Central Bank, says costs should not be regarded as problematic. “The LEI problem has a lot of implications in the processes in the industry, increasing operational risk and preventing effective automation... It could enable the industry to improve its technical processes and to become much more productive over time, so rather than potential costs it’s all about investment with a high return,” says Gross.

There have also been discussions around the extent to which the LEI could eventually become a global solution. This is also expected to be a key point reflected in industry feedback to the OFR. Gross, who for the past year has taken an active role in these conversations in the US and Europe, says he now feels confident about the shared will to co-ordinate and make sure there is one legal entity identifier in place. “There is now a true wish on the side of the OFR team to work internationally, as is also shown by the OFR’s global consultation on the LEI,” he says.